Nominee vs. Legal Heir: Who is Legally Entitled to Funds?

We must plan for the seamless transfer of our money and assets to those we wish to leave them to after our death. Unfortunately, many people wrongly assume that merely nominating someone for any asset is sufficient and that nomination itself automatically transfers ownership to the nominee upon the death of the account holder or owner of the asset. In reality, asset ownership works very differently.

Who is a nominee?

Let’s say Karthik has appointed his 21-year-old daughter, Sudha, as candidate for all bank deposits and savings accounts. This means that Sudha is just the designated person who receives the money from the bank after Karthik’s death; it is not the sole owner of the funds released by the bank. In other words, nomination ensures smooth and hassle-free release of funds by the institution but does not confer ownership.

Legally, in most cases, a nominee merely acts as a custodian or trustee, receiving or holding the money or assets on behalf of the legal heirs who are the rightful owners under the law of inheritance. For example, suppose Karthik also leaves behind his mother, wife and a son. In that case, the mother, wife, son and daughter are all his legal heirs and are legally entitled to his funds and assets. Therefore, while the bank may transfer the funds/assets to his daughter, who is a candidate, the legal heirs have the right to claim their legal share in accordance with the law of inheritance. In short, the nominee only acts as a custodian, while the ownership of the funds or assets rests with the legal heirs.

Why is the nominee paid?

After the death of an account holder, the bank/financial institution releases the money to the nominee to avoid delays and administrative complications. They are more concerned with the seamless transfer of money; Property issues fall outside their purview. Payment to the nominee allows the bank to close the account and discharge its responsibility.

However, such payment neither determines nor transfers ownership of the funds nor takes precedence over legal heir rights under the respective inheritance laws.

Who is a legal heir?

A legal heir is the person who, based on inheritance law or a valid will, has the right to inherit the money/assets of the deceased. In short, they are the rightful legal owners of the funds. In Karthik’s case, his mother, wife, son and daughter are all legal heirs.

Legal heirs are determined by personal laws such as the Hindu Succession Act, the Indian Succession Act, the Muslim Personal Law (Shariat) Application Act, 1937 or other applicable inheritance laws.

The Hindu Succession Act applies to Hindus, Jains, Buddhists and Sikhs and also includes Virashaiva, a Lingayat or a follower of the Brahmo, Prarthana or Arya Samaj. The Indian Succession Act applies to Christians and Parsis and, by implication, to Jews and others not covered by Hindu or Muslim personal law. For Muslims in India, inheritance and succession matters are governed by Islamic personal law.

In the absence of a valid will, these laws determine who the heirs are and in what proportion they are entitled to inherit the deceased’s assets. If a valid will exists, it applies to the estate, but probate law applies to assets not covered by the will or where the will cannot legally operate.

In Karthik’s case, if he dies without leaving a valid will, the manner in which his money and assets are distributed among his legal heirs will be determined by the applicable inheritance law based on his religion. If Karthik is a Hindu, under the Hindu Succession Act, his mother, wife, son and daughter would inherit his property as legal heirs in the manner prescribed by that law, regardless of who is named as a candidate. Therefore, even if Karthik had appointed his daughter Sudha as a candidate, such appointment would not make her the sole owner of the funds or assets nor would it grant her full ownership.

What if there is a will?

If Karthik had made a valid will, his assets would be distributed in accordance with the will, and the provisions of the Hindu Succession Act would apply only to properties not covered by the will.

Inheritance law would only apply to assets not covered by the will or where the will is invalid or cannot be put into effect. Nomination facilitates the transfer of funds and does not determine ownership. Relying solely on nomination is not estate planning and money/assets may not be distributed/transferred as intended. Please note that although nomination rules and inheritance laws apply to most financial assets, insurance cover works differently.

(The writer is a NISM & CRISIL certified Wealth Manager and certified in NISM’s Research Analyst module)

Published on January 19, 2026