Academy of BFSI,

Why do You Need a Nominee for Your Accounts?

Mr. Vijay died of a road accident, leaving behind his young wife and two small children. The family was crestfallen. His wife Sheela, a housewife decided to manage the situation.  

Sheela called Vijay’s employer to get his terminal benefits. However, she found that the nomination was made in the name of Vijay’s mother, who had expired long back. The HR Manager expressed his inability to help her till the completion of required legal formalities.

Back home she could only find a SB Pass book and Fixed Deposit receipts of Vijay. On calling the bank she understood that there is no nominee for his bank accounts and FDs. The branch manager told her that the payment of money in Vijay’s account may take some time due to legal procedures.

Now, if we Vijay had taken a few minutes out of his schedule to update his nominee, this inconvenience could easily be avoided. These days all banks are compulsorily insisting upon nomination for all deposit accounts, lockers, items kept in safe custody etc.

Simple process for simple claims

It is easy to get the money of the deceased depositor whenever nomination has been made by following simple procedure. Nominee need to identify self, provide death certificate of the depositor and fill a simple claim form for getting the money. Post this, the bank transfers the money to the nominee’s account without any delay.

Nominations can be made in the name of minors too. But during his or her minor years, a major has to be appointed as the nominee. Once the minor crosses the age of 18, the nomination in favour of the major automatically gets cancelled.

A nominee can claim the contents of the locker on the death of locker holder by the virtue of nomination. The contents of the locker will be delivered to the nominee by complying with a simple formality.

But for nomination, subject to the amount of deposit, banks insists for Succession Certificate. Obtaining a Succession Certificate is time consuming and calls for additional charges, especially when there are conflicting claims by multiple claimants. In this case, the banks generally insist for production of Succession Certificate issued by a competent court.

Depositors can change the nomination any number of times. The same is applicable for locker contents too. However, for an individual bank account/locker, banks do not accept multiple nominations.

Other benefits

Employers accept nomination for terminal benefits of employees like PF and gratuity. In case of PF and gratuity, employee can make multiple nominations for the same benefit. Here the employee can specify the percentage share payable to each nominee. For example, PF amount: wife – 60%, son – 20%, daughter – 20%, gratuity: wife 80% and mother 20%.

Misconceptions

There is a general notion among the public that there is no necessity of nomination for joint accounts. It is not so. It is always advisable to have nomination even for joint accounts. In case of an unfortunate death of all the joint account holders at the same time, the nomination will save the time in getting back the money from that account.

There is one more misunderstanding in the minds of the public that the money which a nominee gets on the death of the depositor belongs to the nominee. But it is not so. Nomination is only an arrangement for easy determination of the claimant of money for the bank. Bank is discharged from its liability by making payment of deposit to the nominee.  

However, the nominee will not become the owner of the money by virtue of nomination. In case of partitions, nominee has to contribute the benefits he/she has received under nomination to the common stock and get his/her portion of assets as per the applicable Succession Act.

Nominations are accepted for LIC policies, demat accounts, post office SB, RD, NSC etc. This small task can help you take care of your survivors in case of an unfortunate accident.

About the Author

This article has been written by Professor Vadiraja Sharma Y S, Faculty at Manipal Global Academy of BFSI.

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