One of the common problems people face is when an account holder in the family dies without appointing a nominee. Today, when you open a bank account or a demat account or even buy mutual funds, it is mandatory to appoint a nominee. In case you choose not to name a nominee, you must mention the reason why you dont want to appoint a nominee. But, coming back to the practical aspect of it, if a person dies without a nomination, it can create a major logistic problem.
Understanding the waterfall concept in Nomination
When we talk of a nominee to a bank account or a demat account, there is a waterfall that one needs to understand and where the nominee fits into the entire scheme of things.
- Firstly, even if the account has a nominee, in the event of the death of the primary account holder, the account will vest on the other joint account holders. Hence, joint account holders have the first order of preference in the event of the death of the primary account holder.
- Secondly, if the primary account holder is holding the account in individual capacity, then the account will automatically vest on the nominee. In this case, the nominee only has to submit the registered death certificate with the application.
- Thirdly, in case there is no nominee, the next level of waterfall will be the will or legal testament made by the primary account holder. This will the third level where the account ownership will pass on based on the terms of the will and consummated by the executor.
- Lastly, if even the will is not in existence, then it takes the due process of law and the account vesting will depend on the legal dependents of the primary account holder based on legal affidavits duly signed.
What if the account holder dies without appointing a nominee?
If the account holder has already appointed a nominee, then it is simple. The nominee can approach the bank with the death certificate of the deceased and his / her proof of identity to be authenticated. The process of transferring funds into the nominee account takes about 6 to 12 months. But what happens if there is no nominee?
- In case there is no nominee, the bank will need clarity on who is the rightful owner of the money. This will apply to bank accounts and to investments. These steps become essential if there is no nominee.
- The first document that the bank / DP will look for is the will that is signed and registered by the deceased account holder. The will must clearly mention about the owner of the funds / investments and how it will be bequeathed.
- In case the registered will is missing, the bank will insist that you get the succession certificate from the court, which will be the legal document certifying that you are the rightful owner of the funds / investments.
- In the case of joint account or joint investments if the first account holder dies, the second account holder only needs to submit an application with the death certificate and the account automatically vests on them, even if there is a nominee.
- While the nominee will be the automatic next level if the primary account holder (not joint account) dies, there can still be legal issues if there are other legal claimants to the funds. Then it becomes a legal issue. In that case, the bank / DP can insist on more clarity from the claimants.
- In case there are multiple claimants as the heir to the deceased, even if there is a nominee, these legal heirs can approach the court for a legal resolution. The onus is on the nominee to prove that the nomination was not under duress. The court has to be moved for a succession certificate which will be the relevant document for transmission.
- Normally, the best way if there is no will or nominee is for the legal heirs to sit down and internally work out the solution and then approach the court with a registered copy of the family agreement. Each legal heir will have to give a legal affidavit in this case.
Better safe than sorry
While all these steps are good as an afterthought, they can be proactively avoided by appointing nominee for your account. You can change the nominee at any point of time and any number of times. Secondly, it is better to include your spouse or children in the joint bank account so that use of the account does not get restricted. Also, keep one joint account on either/or basis so that in the event of debilitating health problems, your spouse has access to the bank account. Above all, dont delay the making of the will and registering it. It can avoid a lot of unnecessary problems after the demise of the account holder!