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Nominee Vs Legal Heirs for Fixed Deposits

Nominee Vs Legal Heirs for Fixed Deposits

Picture a scenario where a considerable sum of money has been invested in a fixed deposit. A nomination has also been made. Sometime later, the depositor passes away and the money in the fixed deposit is given to the nominee. Everything seems to be going well, when suddenly, someone comes forward claiming they are the deceased person’s legal heir and that they are entitled to the money given to the nominee. The matter goes up in front of a judge and the judge rules that the money, assuming the claimant was indeed the depositor’s legal heir, goes to the legal heir. How did this happen?
It may come as a surprise to you but a nominee, in fact, is not the same thing as a legal heir and the claim of a legal heir supersedes that of the nominee. Confused? Don’t worry, there is an explanation to support this.

What is a nominee?

Technically speaking, a nominee is just a custodian. They are people on whom falls the responsibility of ensuring that the legal heir of the depositor gets the money from a fixed deposit. While there may be times when the nominee is the same as the legal heir, their status as nominee means that they don’t really ‘own’ the money.

What is a legal heir?

A legal heir, simply put, is a person defined by a will and testament as the person who should receive the benefits of the deceased’s estates and, in this case, the money from the fixed deposit.

But what happens if no will has been created?

In such cases, legal heirs may be decided based on prevailing laws of inheritance in India. This means that the decision will be made based on the Hindu Law or the Muslim law, etc.

Defining who gets the maturity proceeds

The answer to this question is painfully simple. Make a will!
Some people assume that making a will is an archaic practice and that a nomination is enough to ensure that the money goes where you want it to, but they are wrong. The contents of a will always supplant any claims made by anyone else. If you want to ensure that the nominee gets the benefits, mention it clearly in the will.

What happens in case there are no instructions left behind?

Wills and nominations are all fine but what happens if the deceased left no instructions about what was to be done with the fixed deposit in the event of their death?
There are two things that may happen in such a case. First, the bank will try and get in touch with someone related to the deceased deposit-holder. Second, and more likely, is that, in case no one can be reached, the bank will reinvest the fixed deposit or park the money till such time as someone claims it. If someone does come forward to claim the amount, they will be asked to prove their relationship with the depositor before getting access to the FD funds.

Where do the banks fit into all this?

You might be wondering, if a nominee is not the legal heir then why would the bank hand over the FD proceeds to him/her?
The answer to this is that the bank’s responsibility ends with paying out the fixed deposit proceeds to the stated nominee. If a nominee was named then the money goes to the nominee else to a proven legal heir. Once the FD is handed over to the nominee, its distribution is the responsibility of the nominee and not the banks.

The exception to the rule

Every rule has an exception and this rule is no different.
As per the rules, people who can actually ‘own’ the inheritance are the legal heirs and not nominees. The exception comes in when dealing with shares. If a person has been named the nominee to certain shares, they actually ‘own’ those shares until or unless a will is produced which supersedes the nomination.
Have you ever seen a family dispute over the estate of a recently deceased member of the family? It’s never a pretty sight and in most cases onlookers wonder why the dispute even exists since the person clearly named A or B to be the nominee. Now that you know one of the reasons these disputes exist ensure you make a will that clearly states who receives the fund and spare your loved ones the headache of battling it out in court.

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