The Ultimate Guide To Nominee Vs. Legal Heir

People often confuse nominees and legal heirs. Some even use them synonymously. However, the concept of a nominee and legal heir is far from the conventional perspective. This blog takes a keen look at the concept of nominee vs. legal heir.

Nominee Vs. Legal Heir: Defining A Nominee And A Legal Heir

The custodian of the assets. The nominee guarantees the transmission of assets to the eligible successors of a deceased person.

Legal heirs inherit the assets of a deceased. Their identity is determined by the law of succession or a valid will.

For instance, B and C are the nominee and the legal heir of A, respectively. In case of A’s demise, B will be entrusted with the transfer of assets to C. In other words, it will be B’s responsibility to ensure that the assets go to C.

Role Of A Nominee

A nominee is a facilitator required by law to streamline the transfer process. A sector-wise view gives a perspective on how the duties of a nominee vary with assets. 

1. Deposits

Claims of dead individuals must be settled within fifteen days¹ of such intimation. Other than the Indian Succession Act, banking nomination rules are also governed by Sections 45 ZC to 45 ZF of the Banking Regulation Act, 1949 and the Banking Companies (Nomination) Rules, 1985. Only individuals can become nominees. 

2. Investments

The proceeds of investments and insurance benefits are given to a nominee. They ensure that the assets are transmitted to the legal heirs. The liability of payment no longer lies with the agencies. 

Rights Of A Legal Heir

When an individual is identified as a legal heir, the following rights apply to them.

1. Legal heirs have ownership rights to the asset. They become the new owners of the assets.

2. The legal heirs can move the courts in case of any foul play.

3. The legal heirs can sell or rent the property. They would also be liable for the upcoming taxes and dues. They might also have to collect succession certificates from a court.

Asset Distribution Scenarios

Asset inheritance in India is determined by various acts and wills.

1. With A Valid Will

In the presence of a valid will, asset distribution and asset inheritance are performed as per the will. A valid will has precedence² over personal laws and acts of succession like the Indian Act of Succession and the Hindu Succession Act.

2. Without A Will: Intestate Succession

The process of allocating a deceased person's inheritance in the absence of a valid will is known as intestate succession. In this instance, the allocation of the inheritance is decided by the law. Some key points in intestate succession are listed below.

A. Class I³ heirs refer to a son, daughter, mother, widow, and grandchildren. They have the first to claim the property. Each surviving successor gets a portion of the estate if there are several.

B. In the case of no class I heirs, class II heirs inherit the property.

C. The property is transferred to cognates, who are related by blood in the absence of Class I or Class II heirs.

D. In the case of a widow and lineal descendants, the widow gets one-third of the assets, while the lineal descendants get the other two-thirds.

Exceptions Where The Nominee Becomes A Beneficiary

Although the essence of nomination remains the same, it works a little differently in the case of LIC and EPF.

1. Life Insurance Policy

In case of the policyholder’s demise, the life insurance nominee becomes a beneficiary. Any individual or organisation that gains money or benefits from a financial transaction is considered a beneficiary. The nominee obtains the death benefit. 

2. Employee Provident Fund

Similarly, in the case of EPF, the EPF nominee receives the benefits. The Employee Provident Fund Organisation (EPFO) is not responsible for ensuring dispersion to legal heirs. 

3. Vehicles

A nominee gets possession of a vehicle after the deceased. Even in case of vehicle insurance, the nominee receives the insurance payout.

Importance Of Estate Planning

People ignore succession and estate planning. However, it is an indispensable tool for securing the lives of loved ones and ensuring a smooth transfer of assets. Estate planning refers to the strategy detailing the transmission of estate, finances and other assets to the legal heirs.

Following are the benefits of estate planning.

1. Allocation Of Assets

Estate planning ensures that the asset reaches the rightful legal heirs. In the absence of optimum estate planning, assets may go into the wrong hands. This process ensures that the painstakingly accumulated wealth of a deceased goes to the loved ones. A will is usually used to reach an optimum allocation of assets.

2. Minimising Legal Hassles

In the absence of estate planning, assets are distributed as per the provisions of personal laws and the Indian Succession Act. Any individual claim can entangle an asset into lengthy and expensive court proceedings. 

3. Tax

Estate planning allows individuals to allocate their estate in a manner that best suits the individual needs of legal heirs. Assets can be allocated to minimise the tax burden of the future beneficiary.

4. Future Planning

The process might not be as gloomy as it seems. Estate planning often gives individuals the opportunity to think about the future and the material needs of dependents. The process might provide financial goals to individuals. 

5. Preservation Of Assets

Estate planning provides for an all-round dispersion of assets. Individuals can create provisions and guidelines for the preservation of specific assets. This is done mostly through a will.

Conclusion

There is a clear distinction between legal heirs and nominees. However, both are necessary for the successful and smooth transfer of assets. It is the legal responsibility of the nominee to ensure that an asset reaches its rightful new owner. The process of ascertaining the legal heirs, their claims and nominees is called estate planning. It is integral to ensure smooth and quick transfer without any legal hassle.

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Frequently Asked Questions

1. Does a nominee become the owner of the assets after the account holder's Death?

The nominee ensures the transfer of assets to the legal heirs. The nominee does not become the legal heir. However, in the case of assets like EPF and LIC, the nominee becomes the beneficiary. The benefits of these policies are credited to the nominee.

2. What happens if there is no nominee for an asset?

In the absence of a nominee, the asset is dispersed based on personal laws and succession acts like the Indian Succession Act. The laws about the asset and the organisation that issued it will also govern the transfer. The process becomes time-consuming and expensive.

3. Can legal heirs challenge the nominee's claim to assets?

A nominee does not have any claim to an asset. Their responsibility is to ensure the transfer to legal heirs. If the legal heirs suspect any foul play, they may move the courts.

References:

1. Reserve Bank of India, accessed from: https://www.rbi.org.in/commonperson/English/Scripts/NS_IVRS.aspx

2. Livemint, accessed from: https://www.livemint.com/Money/gK7xD68u2hB8FpxPP7Y2HJ/Provisions-of-a-valid-Will-can-supersede-the-Hindu-laws-of-s.html#:~:text=Provisions%20of%20a%20valid%20Will%20can%20supersede%20the%20Hindu%20laws%20of%20succession.

3. Income Tax Department, Government of India, accessed from: https://incometaxindia.gov.in/Acts/Hindu%20Succession%20Act%2C%201956/102120000000004350.htm

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