A fixed deposit is a trusted and popular financial instrument in the Indian market. Many people believe in investing their earnings in fixed deposits because of low risk and guaranteed returns. However, at the time of investment, many investors forget to research the nomination options and the regulations followed in case of the sudden demise of the primary investor. Usually, every account holder must name a nominee in bank accounts. The nominee is considered the caretaker of the amount until the legal heir claims it. This article describes the role of a nominee vs. a legal heir and the different scenarios wherein the bank decides to disburse the amount to one or the other.
What is the Procedure for Opening an FD?
Opening a fixed deposit account is a simple and quick procedure. You must submit KYC documents for personal identification, address proof, and account details. It is essential to name a nominee –they will take care of your funds should something happen to you.
What is a Nominee?
A fixed deposit account holder names a nominee as the person who will get the amount in the fixed deposit account in case of the sudden demise of the account holder. According to the law in India, the nominees are considered the caretakers of the funds. The nominee should ensure the funds are used per the account holder’s wishes.
The concept of a nominee was introduced in banking to ensure proper management and transfer of financial assets if the account owner is incapacitated or no more.
What is a Legal Heir?
The legal heir is the person entitled to inherit a deceased person’s assets and liabilities under the succession laws. If an FD holder passes away, the legal heir is entitled to receive the deposit amount on final maturity. There may be more than one legal heir, and they inherit all the assets and liabilities of the deceased.
The bank is obligated to pass on the ownership of the fixed deposit account to the rightful/legal heirs of the account holder. If a man dies without leaving a will or without defining a legal heir, the Indian succession laws specify the legal heir as below –
- The deceased’s widow, children, and mother are classified as Class I heirs.
- The deceased’s father, grandchild, great-grandchild, sister, brother, and other relatives are considered Class II heirs.
- If the deceased is a woman, the money is divided equally between her husband and children.
Nominee vs. Legal Heir for Fixed Deposits
In a fixed deposit account, the nominee is considered a caretaker of the funds until the legal heir claims them. The roles played by a nominee and a legal heir are distinct but equally important. Here is a look at the importance of both –
- Importance of a Nominee for the Fixed Deposit – Appointing a nominee in a fixed deposit account is essential to ensure that if the account holder passes away or is incapacitated – the bank does not hold back the funds. Instead, they are transferred to someone the account holder can trust. Opening an FD account with a nominee builds trust in the account holders that their money will be disbursed to their rightful heirs. If the account holder does not appoint a nominee, the legal heirs must prove their relationship to the deceased and submit a death certificate. The process is tedious and may complicate matters for the grieving family.
- Importance of a Legal Heir for the Fixed Deposit – Everyone should specify a legal heir in their will for all their investments, property, and assets. If a deceased account holder has specified a legal heir, all the proceeds from their investments, including fixed deposits, are inherited by the heir. The nominee, the caretaker of the fixed deposit funds, can transfer the funds to the legal heir. Otherwise, the legal heirs must go through the tedious process of producing death certificates and proofs of relationship to access the FD account.
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What Happens if No Nominee or Legal Heir is Appointed?
If an account holder has not appointed a nominee or a will, the legal heirs are entitled to the funds in the fixed deposit account. The succession laws of India govern the distribution of all financial assets of the deceased. Legal heirs must produce documents to prove their identity and relationship with the FD account holder.
They must also obtain a legal order from the court, such as a transfer order. Such an order will entitle the legal heir to receive all the assets, including bank accounts. Everyone should make a will and define the beneficiaries for all financial assets, including fixed deposits.
Who Receives the FD Funds if the Account Holder Has Appointed Both?
If an FD account holder has appointed a nominee and named a legal heir, the bank will release the amount to the nominee. The nominee must safeguard the money until the legal heirs claim it. If an heir claims the amount, the nominee should transfer the funds to them. However, the nominee may keep the funds if no legal heirs claim the funds in the fixed deposit.
Who Receives the Maturity Amount – Nominee or Legal Heir?
The final amount is paid to the legal heir if the Fixed deposit account has completed its tenure and reaches maturity. As mentioned above, the same process is followed for a mature fixed deposit. The bank transfers the amount to the nominee. The nominee is the caretaker of the amount. The nominee transfers the amount to the legal heir when they claim it.
Learn more about the processes and regulations – How to claim a fixed deposit after death.
|Who||A nominee is a trustworthy person named by the account holder. The nomination is done at the time of account opening. The nominee may or may not be related to the account holder.||The legal heir is usually a relative of the account holder, such as a son, daughter, or spouse. The name of the legal heir is mentioned in the will.|
|Ownership||The nominee is a caretaker and does not own the FD funds.||The legal heir inherits the ownership of the funds in a fixed deposit after the account holder’s death.|
|Responsibility||The nominee is responsible for safeguarding the money until the legal heir can claim the amount.||The legal heir will be the owner of the FD funds once the nominee disburses the amount to them.|
|Absence of a Will||The nominee is the caretaker of the amount until the account holder’s family completes the succession formalities. After that, the nominee is obligated to transfer the amount to them.||Succession laws of the land decide the legal heir of the deceased, and they will get the right to inherit the FD amount.|
How to Choose a Nominee?
Here are some essential factors to consider when choosing a nominee for a fixed deposit account –
- Provide Precise Details – When nominating someone as the caretaker of your fixed deposit account, provide all the details carefully. Ensure that their name is spelt correctly to avoid any confusion later. If you appoint multiple nominees, their percentage share should be specified to the bank. If the nominee is a minor, you must mention a guardian who can sign.
- Updated Set of Details – Usually, the nominee details are provided to the bank at the time of purchase of the asset. However, checking the details occasionally to ensure that everything is updated is a good idea. The nominee may change their name the spelling of their name, or they may change their address – it is the account holder’s responsibility to inform the bank about the change. If the nominee passes away before the account holder, they must talk to the bank and appoint a new one.
- Select the nominee Carefully – Legally, the account holder can appoint anyone as their nominee. However, it is recommended that the legal heir be named as the nominee to avoid confusion and conflict. Choose someone from your close family members, such as parents, children, or spouse, as the nominee.
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What is a Legal Heir Certificate?
A legal heir certificate proclaims a person’s eligibility to inherit a deceased person’s assets. After the latest law update, only the kin of a deceased government employee may get a legal heir certificate. Everyone else must get a succession certificate from the civil court in their district. You can file a lawsuit in court to obtain the succession certificate.
What Happens if No Legal Heir Claims the Assets?
If a legal heir does not claim the deceased’s assets, the law determines the succession based on personal laws. Per the applicable laws, whoever is declared the legal heir may claim the assets.
Who Can be a Nominee for a Fixed Deposit?
You can nominate anyone from your family or friends as a nominee in your fixed deposit account. They are responsible for safeguarding the fixed deposit amount until the legal heir can claim it.