Nomination Vs.Will

Will a nominee inherit your assets?
By Sakina Babwani, ET Bureau | 4 Nov, 2013

Find out about the types of investments that will automatically be passed on to a nominee and those that can only be claimed by legal heirs.

If you think appointing nominees for all your investments, from insurance to property, is as good as drafting a will, you may be wrong. Mumbai-based Nalin Shah found this out recently when he approached his lawyer for drafting a will. In 2010, he had appointed his wife as a nominee in an insurance policy, but his lawyer informed him that his wife would not automatically receive the sum insured.

Instead, the legal heirs named in his will would inherit it. Experts say that a nominee is merely a trustee, who must distribute the
assets to the legal heirs named in a will, or as per succession laws.

However, there are some investments, like company shares, where the provisions of the respective Acts override those of succession laws. Here's the legal position of the nominee in different situations.

As per Section 39 of the Insurance Act, 1939, the insurance company must hand over the amount to the nominee mentioned in the policy. The nominee is expected to distribute it to the legal heirs listed in the policyholder's will. In the absence of a will, individual succession laws come into play. In 1983, in the Sarbati Devi vs Usha Devi case, the Supreme Court took a clear stand on this matter.

Usha Devi was appointed the sole nominee in her husband's insurance policy, and upon his death, she claimed absolute right over the amount. However, her mother-in-law, Sarbati Devi, claimed a stake in the insurance amount.

The Supreme Court stated, "A mere nomination made under Section 39 does not confer on the nominee any beneficial interest in the amount payable under the life insurance policies on the death of the insured." The amount, however, can be claimed by the heirs of the assured in accordance with the law of succession governing them.

Property in cooperative housing society

As with insurance amount, a nominee to a property in a housing society does not automatically inherit it. On the death of the original owner, the housing society has to transfer the shares of the deceased to the nominee, who must, in turn, transfer them to the legal heirs.

In 2009, in a case that had dragged on for 29 years, the Bombay High Court gave a verdict that reiterated the legal position of a nominee. In the Ramdas Shivram Sattur vs Rameshchandra case, the former had bought a plot in Nav Rajasthan Co-operative Housing Society in Pune.

Sattur had named his wife, Tarabai, as nominee, and on his death, she tried to sell it. However, she was sued by her four children, who claimed a share in the property.

As per the Hindu law, if the deceased doesn't leave a will, the property is shared equally among the wife and children. The Bombay High Court ruled that since the nominee represented the legal heirs of the deceased member while dealing with the cooperative society, he/she was only empowered to act on behalf of the real owners, that is, only till the court decided the legal heir(s) entitled to the property.

Bank accounts, mutual funds & other investments

The nominees in the case of bank accounts, mutual funds and other
investments also need not be the automatic, sole beneficiaries. The RBI guidelines make this amply clear, as does the Calcutta High Court, in the Arnab Kumar Sarkar vs Reba Mukherjee & Others case of 2006.

It ruled that "a nomination with respect to a bank deposit cannot be elevated to the status of a testamentary disposition merely by reason of the death of the depositor prior to the receipt of the proceeds from the deposits". In such a situation, refer to Section 45ZA of The Banking Regulation Act, 1949.

Employees' Provident Fund

The situation is different in the case of EPF. Here, it is the nominee, not the person stated in the will, who inherits the amount. In fact, according to the rules, you cannot nominate any person other than a family member to your EPF account, unless you do not have a family at all.

Moreover, once you acquire a family, you will have to change your nomination in favour of a member. You can also nominate multiple family members and state the proportions in which they will inherit the EPF monies. For further clarification, refer to Section 61 of the
Employee Provident Fund Scheme, 1952.
Company Shares

As per Section 109A of the Companies Act, the nominee legally inherits shares after the death of the original shareholder, even if the latter has named someone else in the will. A Bombay High Court judgement in 2010, in the Harsha Nitin Kokate vs The Saraswat Coop Bank & Others case, made this clear.

In this case, Nitin Kokate had made his nephew the nominee for shares held in the demat account of the depository participant cell of the bank, in 2006. When he died a year later, his wife Harsha filed a petition in the court, seeking permission to sell her deceased husband's shares. The court held that she had no right over these under the provisions of the Companies Act.

Why nominate at all?

Irrespective of the fact that the nominee inherits the asset or not, you must nominate someone to take charge of the asset after your death. You should also have a will in place so that your assets can be distributed as per your wish.

"In some cases, the nominee inherits the asset. Hence, it is advisable to consult a lawyer to guide you about the legal status of the nominee and heir," says Ravi Goenka, advocate, Goenka Law Associates.


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