We often receive messages from our banks, mutual funds, insurance companies, and demat accounts to declare a nominee. What is a nominee, and what is the importance of having a nominee? Is it different from a legal heir? When you own wealth in assets, investments, properties, etc., you may want to pass on that legacy to your loved ones without undergoing painful legal procedures. So, knowing the difference between a nominee and a legal heir can help avoid various legal challenges that may surface at the time of the legacy transfer.

The major difference, as the word implies, is in the nature of the two. A nominee is declared as a custodian of the asset. People declare a nominee under their investment and assets. A legal heir is a person who gets the ownership right of the asset, and usually, it is mentioned under the will. However, sometimes the legal and nominee can be the same person.

Things To Keep In Mind When Choosing Nominees And Legal Heirs

The nominee is called the custodian of assets in case of the death of the owner. A custodian is someone who takes care of the assets till the legal heir is determined. Once the legal heir is determined, the nominee hands the assets over to him or her. As explained, the same person can be a legal heir if declared so in the will of the deceased.

So, it is important to choose nominees who are trustworthy to you. It could be your relatives, close family members, or a close friend. You can change the nominee for your various assets any number of times in the future. Similarly, you can change the beneficiary in your existing will by writing a new will. The terms of the last will supersede all the wills made in the past.

Ameet Hariani, Senior Solicitor, Arbitrator and Mediator, Doing Chamber Practice suggests, “Make sure your spouse is fully aware of and agrees with what you’re doing. At some point, there’s going to be only one of you. While making your wills, take your children into confidence, if possible. In any event, give copies of your wills to your children after making your wills. Talk to them openly about what they will receive when both your spouse and you are not there.”

Places Where Nominees Are Important

Nominees are important in fixed deposits, bank accounts, mutual funds, demat accounts or any other investment. Sebi has made it mandatory to have a nominee in a Demat account and mutual fund investment, and the last date for making your nomination choice is December 31, 2023. It means if you have a Demat account or mutual fund investment by December 31, 2023, you need to either mention the nominee’s details or express your wish not to opt for the nominee.

What Happens In The Absence Of A Legal Heir And Nominee?

If the nominee is not mentioned, the legal heir directly gets the ownership of assets. If both are not mentioned, then the succession law applies. The succession law defines the legal heir inheriting the assets and properties of the deceased person. The legal heirs can be one person or multiple people.

If the deceased has not written a will to distribute his or her wealth, then according to the Hindu Succession Act 1956, the following rules apply in terms of priority for distribution of the assets.

Class – 1 legal heir: They have the first right over the deceased person’s assets. Class 1 heir includes the widow, children, and the mother.

Class – 2 legal heir: If there is no class 1 legal heir to claim the deceased person’s assets, class 2 heirs can claim the assets. Class 2 heir includes father, grandchild, great-grandchild, sister, brother and other relatives.

This is just the guideline on class 1 and class 2 legal heirs under the Hindu Succession Act. It is advisable to consult a legal expert for a detailed insight into applicable rules for the succession of the assets.

The author is an independent financial journalist