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This article touches upon the important distinction between nominees and legal heirs in India and shows the right thing to do avoid disputes over succession.
This article is a part of our detailed article series on the concept of nominees, legal heirs and wills in India. Ensure you have read the other parts here:
This article gives you a list of common terms in use in Indian succession law on the concept of legal heirs, nomination and the concept of making a will.
As per SEBI rules, mutual fund investors must have nominees in their folios or explicitly opt out. Otherwise they will face restrictions in selling units.
On 14-Dec-2023, the Supreme Court ruled in favour of the legal heir, instead of the nominee, for ownership of some of their father’s assets.
The issue started when a father gave one son all his mutual funds and FDs while the other son, who was the nominee of these assets, did not get any of the them in the will. The nominee son, after the father’s death, started the case which first went to the high court and then to the Supreme Court in 2017.
The Supreme Court finally ruled what is not really news at this point:
Only the successor as per will has claim over shares and not the nominee
Here, the case is of deliberate exclusion of the nominee son from the assets. The point being made by the Supreme Court is that nomination does not imply ownership in any form and cannot be contested in the face of a will.
The complete 42-page Supreme Court judgement is here.
A nominee is a temporary custodian of assets until the transfer to the legal heir is completed
A nominee, in financial terms, is an individual designated by an account holder or policyholder to receive the benefits or proceeds of a financial asset or investment in the event of the account holder’s death. The nominee acts as a trustee of sorts, entrusted with the assets until they are rightfully transferred to the legal heirs or beneficiaries.
Nomination as a concept exists solely to make it easy to transfer the assets after the death of an individual. Ultimately, these assets will be passed on to the legal heirs. In this case, the will of the father specifically excluded one son from the assets.
As argued here: Why you must complete your mutual fund nominations?, it is a SEBI mandate to have all mutual funds, bank accounts, demat and trading accounts have nominations, or alternatively explicitly opt out from nomination.
These financial institutions have the right, as per SEBI, to freeze activities in such accounts / folios, since it is not up to the bank / AMC to hunt around for the legal heirs to transfer the assets. Instead, the nominee acts as the temporary custodian to take care of the transmission as per will or as per applicable succession laws.
In case there is no nomination, these assets will lie unclaimed. The legal heirs will have to first locate the assets and go through lengthy and complicated processes to claim the assets by producing legal heir certificate etc.
Another common question that will come is:
An alternative version of this question is:
Will my mother get anything if I have made my wife nominee?
As explained in our Frequently asked questions (FAQs) on legal heirs and nominees in India, under the The Hindu Succession Act, 1956/2005,
Therefore, in such a case, both mother and wife of the deceased person will have rights over the assets being Class 1 legal heirs. In case The Hindu Succession Act, 1956/2005 is not applicable to you, please review the appropriate succession laws. There are nuances around inherited vs. self-acquired property as well that needs to be carefully considered.
A registered will, which clearly details all the assets and their owners, will make transmission easier. To lower the chances of litigation, it will be advisable to add the same nomination as the recipients in the will.
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This post titled How a fight between brothers over nomination of their father's shares required the Supreme Court to pass a judgement first appeared on 17 Dec 2023 at https://arthgyaan.com
