Understanding the Role of a Nominee in Bank Accounts

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Understanding the Role of a Nominee in Bank Accounts

Key Takeaways

• A nominee is a person designated to receive the amounts in a bank account upon the account holder's passing.
• You can assign only one nominee for individually-held bank accounts.
• A nominee may or may not be a legal heir.
• The rights of a legal heir supersede those of a nominee.
• The nominee acts as a trustee of the funds and is responsible for transferring them to the legal heir.

Why Appoint a Nominee for Your Bank Account?

You typically build assets so that your next generation can lead a life of financial security. To enable you to ensure your dependents don’t lose out on what’s rightfully theirs, banks offer the nomination facility. While opening Savings Account or Fixed Deposit Accounts, you need to fill out a form with various sections, one of which is the nomination declaration section. This facility is provided for all kinds of financial investments and assets.

What is a Bank Account Nominee?

A nominee is an individual designated to receive the funds in one’s account, upon their demise. When the primary account holder dies, the bank passes on their bank account proceeds to the nominee. The bank essentially transfers the balance funds from your account to the nominee’s account. The nominee is required to submit an ID proof document, as well as their financial details, including the bank name and account number. Nominees are not bound to submit additional documentation, such as a court order or succession certificate, in order to access the funds, unlike legal heirs.

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Importance of Having a Nominee for a Bank Account

It is imperative to designate a nominee for your bank account in order to guarantee the seamless and easy transmission of your funds in the event of your death. Settlement of funds may become complicated and time-consuming if no nominee is chosen. The Reserve Bank of India (RBI) has reported that the number of unclaimed deposits is progressively increasing, underscoring the significance of nomination.

Security for your family's financial future can be achieved by designating a family member as your nominee. This enables your dependents, including your spouse, children, and elderly parents, to independently manage their finances without dependency on others. The declaration of a nominee guarantees that your family can access your assets promptly and efficiently, thereby ensuring financial stability in your absence.

Without registering a nominee, your legal heir will be entitled to claim the assets. At the same time, the legal heir may encounter substantial obstacles in asserting their succession rights and assets if they are not the nominee. To prevent such complications for your dependents, you, the account holder, can designate a nominee at the time of account opening or at any point after the account is active.

Differences Between Legal Heir and Nominee

It is essential to understand the difference between a legal heir and a nominee in the banking sector.

Legal Heir: This is the individual who is designated in the will of the deceased to receive the assets. The estate of the deceased is ultimately owned by the legal heirs.

Nominee: This individual is designated as the account's custodian, with the responsibility of ensuring that the lawful heir receives the account holder's funds. The nominee serves as a trustee, not the beneficiary.

The nominee's rights are superseded by those of the legal heir. Transferring assets is made easier when the nominee is also the legal heir.

Nominee in Banking - Whom Can You Appoint?

In banking, it's important to understand what a nominee is. The following can be nominated for your bank account:

• Any trusted individual
• Family members, such as your spouse, children, or siblings
• Relatives, friends, or a will executor

Important Nomination Rules for Bank Account Holders

• Single Nominee: Typically, you can appoint only one nominee per bank account. However, you can designate different nominees for multiple accounts.
• Nominee vs. Legal Heir: If the nominee is not a legal heir, they cannot use the funds but act as trustees, transferring the funds to the legal heirs.
• Minor Nominee: If your nominee is a minor, you must appoint a guardian. In the event of the account holder's death while the nominee is still a minor, the bank will transfer the funds to the appointed guardian.
• NRI Nominee: You can nominate a Non-Resident Indian (NRI). The bank will transfer the money overseas, subject to necessary RBI permits.
• Changing Nominees: To change or remove an existing nominee, submit forms DA2 and DA3, respectively.
• Joint Accounts: For joint accounts, both account holders must agree to any changes related to nominees.
• Locker Accounts: Nominees should also be appointed for your locker accounts.

Final Note

The nominee's role in bank accounts is of paramount importance, as it guarantees that your legitimate beneficiaries receive their inheritance with ease. The process of adding a nominee is fast and straightforward, and you can always modify, remove, or add nominees once the account is active.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.