
Nomination
A nominee is a legal trustee of the assets of the deceased i.e. a custodian. The nominee will only hold your money/asset as a trustee and is legally bound to transfer it to the legal heir(s) or beneficiary entitled to the deceased’s assets. A legal heir is the person bequeathed the asset in the will of the deceased. However, if a will is not made, then the legal heirs of the assets are decided according to the succession laws, for which a succession certificate will be issued by the relevant court.
Even if one has made a will, it is a best practice to make nominations in favour of desired beneficiaries in respect of all assets such as real estate properties, bank/demat accounts, fixed/recurring deposits, bank lockers, investments (mutual funds, shares, bonds, debentures), Public Provident Fund, insurance policies and other corporate and Govt investment schemes. Banks usually ask you to mention a nominee while opening a bank account — be it a savings bank account or a fixed deposit. A nominee is a person that an account holder designates to claim the money in the savings account after the original owner of the account dies.
Though it is not mandatory, it is certainly preferable for the nominee in respect of these assets to be the same as the beneficiary mentioned in the Will. This will avoid any possible dispute, which may occur if the nominee and legal heir/beneficiary are different individuals/entities and would also simplify the transfer of assets.
Transmission of the deceased person’s assets to the nominee is much smoother and requires less paperwork – normally nothing more than a death certificate of the deceased, proof of identity of the nominee and an application form. If, on the other hand, no nominee is listed, the transmission process can get quite complicated involving various long forms, indemnity bonds and affidavits, and other documents which may have to be signed by all legal heirs – both the beneficiary as well as others who have not been bequeathed the asset.
In case the appointed nominee dies before the account holder, “the nomination in respect of such nominee alone shall become ineffective and the amount of deposit purported to be nominated in favour of the deceased nominee shall be treated as if the nomination had not been made in respect of that portion of the deposit”.
Amendment in Bank Account Nominations
The Banking Laws (Amendment) Act 2024 which was passed by the Lok Sabha recently proposes significant changes to the nomination rules for bank accounts. Before the amendment, savings account & fixed deposit holders could register only one nominee except in case of lockers where joint hirers could nominate up to two nominees. The new Act allows up to four nominees and gives greater flexibility in managing and distributing funds among family members or beneficiaries.
Account holders can now choose between the following two types of nominations:
(a) Successive nomination: In this the nominees receive the funds in a predetermined order, wherein the first nominee is solely entitled to the account holder’s assets after his or her demise. All the subsequent nominees in line only becomes eligible if this first nominee passes away before the account holder, or denies the claim. In this case, where the order of nomination has not been explicitly mentioned, the persons shall be deemed to have been nominated in the order in which their names appear in the nomination.
(b) Simultaneous or joint nomination: Under this option, the account holder can decide the distribution of funds among multiple nominees at the same time, with each nominee receiving a specified share. If the percentage is not specified, then all nominees will get equal share. For example, if the account holder appoints 4 people as nominees, and mandates that they will get 40%, 30%, 20% & 10% respectively, upon his or her demise, they receive their respective shares immediately, without any ambiguity or contesting for their share.