A nominee is not a legal heir

Only in case of equities will she automatically get the money. Otherwise, she is only a trustee

Ashok Singh had bought an insurance policy in 2000. When he passed away in 2008, his elder son and wife ended in a legal battle because while the son was the nominee, his wife was the legal heir.

Ideally, the nominee and the heir are the same. But if they are different, the law depicts a nominee as only a trustee. This is true for all financial instruments, except shares and debentures. Says Sajid Mohamed, partner at PDS Associates: “If one is a nominee to investments in shares or debentures, he or she has all rights to liquidate the share, even without the legal heir's permission. That is, a nominee is superior to a legal heir according to the Companies Act.”

Under Section 109A of the Companies Act, if the nomination is made under procedure prescribed by law, he/she will be entitled to become the rightful owner of shares. And, such right shall exclusively favour the nominee and exclude all other persons.

In comparison, Section 39 of the Insurance Act says the appointed nominee will be paid, though he/she may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money. Similarly, Reserve Bank of India (RBI) guidelines specify the deceased’s nominee would receive the money in the capacity of a trustee of the legal heirs. This applies to other financial transactions like provident fund, mutual funds and so on. In case of property, Section 30 of the Maharashtra Co-operative Society Act says in event of the death of a member of a society, the shares of the deceased will be transferred to the nominee. But, this transfer cannot result in vesting of the flat with the nominee.

The situation can get complex in the absence of a will because it can get difficult for the heir to access the money. If Singh had not made a will, his son could have refused to claim the money from the insurance company till his mother agreed to share the proceeds with him. The reason being, “a financial institution will not hand over the money to anyone but the nominee,” says Mohamed. Lawyers say there are many cases where nominees refuse to collect the money from a financial institution till they are promised a share. Or, like Singh's son, a nominee will have to fight a case for their share. And, they may be favoured by the court if they are dependent like aged parent, sibling, wife and so on.

If the nominee does not collect the money the legal heir will have to produce a succession certificate from the court to prove that he or she is the heir to be able to get the money. You can produce a copy of ration card, education certificate(s), PAN or passport as relationship proof as all these documents mention either father’s or husband’s name.

And if the nominee (if in the capacity of a trustee, except in case of shares) is dependent on the deceased, then he can file a case for a share in the proceeds, says Ameet Hariani, managing partner at Hariani & Company.

Lawyers say in cases where nominee is different from legal heirs it makes sense to have a will in place. That's why it was easier for Singh's wife to get the money. Otherwise, nomination to someone who is not a blood relative can be challenged by legal heir, says Hariani.