When you open a bank account, there is a section in the form asking for the name of a nominee. The applicant is required to fill in this information during registration. But who is a nominee, and why is it important to name one? Let's take a closer look.
What is the Definition of Nominee and Nomination?
Since you have an overview of what a nominee in a bank is, let us understand its definition. Nomination is a service that allows an account holder or investor to choose someone to claim their deposit or investment after they pass away.
The nominee is the person (or sometimes a company) the account holder names in the nomination section to take over the asset or account when the original owner dies.
A nominee in a bank is a person chosen by the account holder to receive the account's funds in case of the account holder's death. It can be a family member or any trusted individual. The nominee doesn't have ownership rights while the account holder is alive but acts as a beneficiary after their passing.
Nominee details are provided during account opening or later added. It helps in the quick transfer of funds without legal complications. Having a nominee ensures that the account balance is transferred smoothly. It is important for the financial security of family members after the account holder's demise.
What are the Major Differences Between a Lawful Heir and a Nominee?
Overview
Nominee
Legal Heir
Meaning
A nominee in a bank account is the person chosen by someone to manage their account if they pass away.
A legal heir is a person who inherits the property or assets of someone who has died, and their name is mentioned in the deceased person's will.
Role
The nominee in a bank is like a person who takes care of things.
The legal heir, on the other hand, is the person who benefits from it.
Determined By
The nominee is designated by the account holder through a formal nomination process.
The lawful heir is identified based on the stipulations outlined in the will or under the applicable succession laws.
Who can be a Nominee for a Bank Account?
A nominee for a bank account refers to an individual designated by the account holder to receive the funds in the event of the holder's death.
This nominee can be a trusted individual such as a family member, spouse, child, or relative.
However, it is important to note that if the nominee is not the legal heir, they are not entitled to the funds.
Instead, the nominee's role is that of a trustee, responsible for ensuring that the funds are transferred to the legal heirs as per the account holder’s instructions.
An account holder may designate different nominees for different bank accounts, even if those nominees share the same name.
Additionally, a minor can be appointed as a nominee, but in such cases, the minor must be represented by a guardian.
In such instances, the bank will release the funds to the designated guardian for the minor.
What Happens When There is No Nominee in Bank Account?
When there is no nominee in bank account, the following can happen:
Legal Complications: If the account holder passes away, the bank may face difficulties in determining who should inherit the funds, leading to a lengthy legal process.
Probate Process: The funds in the account may need to go through the probate court to be distributed, which can delay access to the money.
Heirs Must Prove Relationship: Without a nominee, legal heirs (like family members) must provide documentation proving their relationship to the deceased to claim the money.
Risk of Disputes: Without a nominee, family members or others may dispute who is entitled to the funds, leading to potential conflicts.
Bank’s Role is Limited: The bank will follow the legal process and won’t be able to release the money until the rightful heir is determined, which may involve court proceedings or other legal steps.
What are the General Bank Nominee Rules?
The General Bank Nominee Rules typically refer to the guidelines and regulations that govern the appointment and role of a nominee in a bank account, investment, or financial product. These rules can vary depending on the country, bank, or specific financial product, but there are some common principles.
Nominee Appointment
The account holder can nominate one or more individuals as their nominee.
The nominee's role is generally to claim the assets or funds of the account holder in the event of their death.
Nomination must be made by the account holder through an official form or document.
Eligibility of Nominees
Nominees can typically be individuals, such as family members, friends, or legal entities (like a trust).
Some banks or countries may have specific rules regarding who can be appointed as a nominee (e.g., they may need to be an adult or a citizen of the country).
Rights of Nominee
The nominee does not own the assets or funds while the account holder is alive. They only have the right to claim the assets after the account holder’s death.
The nominee's role is to act as a custodian for the asset or account until it is transferred to the rightful heirs or legal claimants.
Documentation and Process
Nominations should be made in writing and filed with the bank or financial institution. Some institutions may require the submission of identification and proof of relationship with the nominee.
In case of the account holder’s death, the nominee typically must present legal documents (such as a death certificate) and follow the bank’s specific process for transferring the assets.
Nominee vs. Legal Heirs
Nominees are not necessarily the legal heirs of the account holder.
In many cases, the bank or financial institution will release the funds or assets to the nominee. Still, the legal heirs have the right to contest this if they believe the nomination was not valid or was made under undue influence.
Revocation or Change of Nominee
The account holder has the right to change or revoke a nominee at any time by submitting a new nomination form.
Revocation is typically allowed unless the account or asset is subject to specific legal or contractual restrictions.
Death of the Nominee
If the nominee dies before the account holder, a substitute nominee may be designated by the account holder.
In the absence of a replacement nominee, the legal heirs may be entitled to the assets or funds.
