Nominees are NOT your Legal Heirs

It is not new to see someone fill up the column for nominee with the name of their loved one, intending that they will receive ownership of the assets in the event of their absence. But many fail to think about the transfer of assets to the nominee in the context of inheritance and succession.

When it comes to the inheritance and succession of assets it is crucial to understand the difference between the legal heirs and nominees, as the distinction between the two has significant implications for the distribution of assets upon the death of a person.

A person is likely to make investments in the share markets, bank savings, fixed deposits, insurance policies, etc. The question of the inheritance of such assets after his death is solved by making nominations in the name of the intended beneficiary, believing that it would suffice. Often in many situations the person before his death makes a Will for distributing the manner in which the assets have to be distributed, without mentioning the nominations, believing that the rights of the nominees over the assets will stay intact. This may result in disputes between the nominees and the heirs regarding the rights over the assets.

Difference between Nominees and Legal Heirs

Nominee: The primary role of the nominee is to act as the trustee of the assets upon the death of the holder of the assets. They are entitled to temporarily hold the assets, which should be distributed to the legal heirs or in the manner prescribed in the Will.

Legal heirs: Legal heirs are those people identified under the applicable inheritance laws, entitled to inherit the assets of the deceased person, or those people mentioned under the Will of the deceased to inherit his assets. They have the right to claim the deceased’s assets.

In the absence of a Will, the legal heirs and the distribution of the assets are as per the succession or personal laws applicable based on the religion of the deceased.

Example:

‘A’ nominates his brother ‘B’ as the nominee for his insurance policies with the intent of transferring ownership and rights over the assets to ‘A’ after his death.

Case 1: ‘A’ in his Will mentions that all his assets whether movable or immovable should be distributed among his wife and children, believing that since he nominated ‘B’ in his insurance policies he will receive the assets naturally.

Here, since ‘B’ being merely the nominee of the assets is legally bound to transfer the assets to the wife and the children. He does not have any ownership rights over the assets as intended by ‘A’.

Case 2: ‘A’ died without leaving any Will.

In this scenario, since ‘A’ did not leave any Will the transfer of his assets takes place as per the succession laws based on the religion of ‘A’. (i.e; the Hindu Succession Act, 1956 for Hindus, Indian Succession Act, 1925 for Christians, Muslim Personal Laws in case of Muslims). ‘B’ has to share or transfer the assets to the legal heirs identified.

As the nominees do not have the ultimate legal ownership of the assets, it is essential to understand the concept and the difference between nominees and legal heirs for effective distribution of the assets.