nomination in bank accounts

Why nomination is important

Nomination is an ideal tool to mitigate hardships of common persons in settlement of claims in the event of death of the account holder. Though Nomination is optional for customers, if availed, would ensure smooth settlement of claim to the nominee or the legal heir. It simplifies the procedure for settlement of claims of deceased depositors as banks / institutions get a valid discharge by making payment of the balance outstanding in a depositor’s account at the time of his death or delivering contents of locker or articles kept in safe custody to the nominee, and the legal heir doesn’t have to face unnecessary hardship in such cases.

However, nomination does not take away the rights of legal heirs on the estate of the deceased. The nominee would be receiving such stock as a trustee of the legal heirs.

What is Nomination :

Nomination is a facility that enables a deposit account holder (individual or sole proprietor) or safe deposit locker holder to nominate an individual, who can claim the proceeds of the deposit account or contents of the safe deposit locker, post the demise of the original depositor or locker holder.

Who can Nominate?

  • Bank account holders having deposit accounts in their individual names or in joint names of two or more individuals can appoint a nominee to their accounts
  • A sole proprietor can appoint a nominee to the sole proprietorship account with the bank
  • In the case of a deposit account in the name of a minor, nomination shall be made by a person lawfully entitled to act on behalf of the minor in respect of a deposit account
  • Safe deposit locker holder(s) can appoint nominee(s) on their Safe deposit locker(s)
  • A nomination can be made only in respect of a deposit account which is held in the individual capacity of the depositor, and not in any representative capacity such as the holder of an office like Director of a Company, Secretary of an Association, partner of a firm, or Karta of an HUF.

Nomination in PPF Accounts :

In case of death of the account holder, irrespective of the sum outstanding in the account, the legal heirs will get a maximum of Rs 1,00,000 only if there is no nominee mentioned in that PPF account. So it is imperative to have nominee mentioned in your PPF account. However, you cannot nominate for accounts opened in the name of a minor.

Nomination in Life Insurance Policies:

Because of the Principal of Insurable Interest in Life Insurance, do ensure that the nominee is a close family member. In case you want to nominate a non-family member like a friend or third party, you will have to provide enough evidence to the insurance company that there is some insurable interest for the person. A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. You can appoint minors also as nominee, but make sure to provide the name of guardian till the minor attains the age of 18.

Nomination in Mutual Fund Accounts:

You can nominate up to three people, who can be registered at the time of purchasing the units in Mutual Funds. Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

Concept of Survivorship

A joint account opened as “Either or Survivor” or “Anyone or Survivors” or “Former or Survivor” or “Latter or Survivor” will permit the surviving account holder(s) to have unimpeded access to the credit balance in the account for withdrawal if one of the co-account holders dies. If the mandate of survivorship is given / provided, the survivor(s) can give a valid discharge to the institution / bank in the case of “Either or Survivor” / “Anyone or Survivors” and “Former or Survivor” / “Latter or Survivor” joint accounts. In short, payment to survivor(s) can be made in the normal course subject to the only rider that there is no order from a competent court restraining from making such payment.

Delays in settlement of claims of the nominee / legal heirs of the deceased depositors by banks cause considerable hardship. Claims by legal heirs / nominee could be in respect of deposits, safe custody articles or contents of lockers. In the absence of nomination or clear mandate in respect of a joint account or a will left behind by the deceased depositor, banks are required to pay the stock (balance outstanding) at the time of death of the person to all the legal heirs. Considering the risk involved, banks traditionally used to look for legal representation (in the form of a succession certificate, letter of administration or probate) for settlement of claims.

In order to remove the hardships faced by Common Person, Reserve Bank of India (RBI), vide circular No. DBOD.No.Leg.BC.95 /09.07.005/2004-05, has issued detailed guidelines for evolving simplified procedure for settlement of claims in respect of deceased depositors. We can broadly define these guidelines as:

1… Accounts where the Survivor / Nominee is available:

In the case of deposit accounts where the depositor had utilized the nomination facility and made a valid nomination or where the account was opened with the survivorship clause (‘either or survivor’, or ‘anyone or survivor’, or ‘former or survivor’ or ‘latter or survivor’), the payment of the balance in the deposit account to the survivor(s) / nominee of a deceased deposit account holder represents a valid discharge of the bank’s liability provided :

a. the bank has exercised due care and caution in establishing the identity of the survivor(s) / nominee and the fact of death of the account holder, through appropriate documentary evidence;
b. there is no order from the competent court restraining the bank from making the payment from the account of the deceased; and
c. it has been made clear to the survivor(s) / nominee that he would be receiving the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the survivor(s) / nominee to whom the payment is made.

It may be noted that since payment made to the survivor(s) / nominee, subject to the foregoing conditions, would constitute a full discharge of the bank’s liability, insistence on production of legal representation is superfluous and unwarranted and only serves to cause entirely avoidable inconvenience to the survivor(s) / nominee and would, therefore, invite serious supervisory disapproval. In such case, therefore, while making payment to the survivor(s) / nominee of the deceased depositor, the banks are advised to desist from insisting on production of succession certificate, letter of administration or probate, etc., or obtain any bond of indemnity or surety from the survivor(s)/nominee, irrespective of the amount standing to the credit of the deceased account holder.

General practice among banks :

Banks generally asks for the following documentation

  • Application
  • Copy of the death certificate issued by the Municipal Authority or Village Panchayat
  • Identification documents of the nominee such as valid Election ID Card, PAN Card or Passport or any other satisfactory proof of identification as acceptable to the concerned bank

The bank generally make the payment to the nominee unless on or before the time of payment any order of court is received prohibiting the bank from making such payment.

2… Accounts where the Survivor / Nominee is not available:

In case where the deceased depositor had not made any nomination or for the accounts other than those styled as ‘either or survivor’ (such as single or jointly operated accounts), banks are advised to adopt a simplified procedure for repayment to legal heir(s) of the depositor keeping in view the imperative need to avoid inconvenience and undue hardship to the common person. In this context, banks may, keeping in view their risk management systems, fix a minimum threshold limit, for the balance in the account of the deceased depositors, up to which claims in respect of the deceased depositors could be settled without insisting on production of any documentation other than a letter of indemnity.

General practice among banks :

Banks generally define a threshold limit for releasing the sum, and ask for the following documentation

  • Application
  • Copy of the death certificate issued by the Municipal Authority or Village Panchayat
  • Indemnity – with or without surety
  • Identification documents of the nominee such as valid Election ID Card, PAN Card or Passport or any other satisfactory proof of identification as acceptable to the concerned bank

For cases beyond the threshold limit some additional documents may be asked :

  • A Succession Certificate
  • A Probate (in case of a Will)
  • A Letter of Administration

3… Premature Termination of term deposit accounts :

In the case of term deposits, banks are advised to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. The conditions subject to which such premature withdrawal would be permitted may also be specified in the account opening form. Such premature withdrawal would not attract any penal charge.

4… Treatment of flows in the name of the deceased depositor :

In order to avoid hardship to the survivor(s) / nominee of a deposit account, banks are advised to obtain appropriate agreement / authorization from the survivor(s) / nominee with regard to the treatment of pipeline flows in the name of the deceased account holder. In this regard, banks could consider adopting either of the following two approaches:

  • The bank could be authorized by the survivor(s) / nominee of a deceased account holder to open an account styled as ‘Estate of Shri ________________, the Deceased’ where all the pipeline flows in the name of the deceased account holder could be allowed to be credited, provided no withdrawals are made.

OR

  • The bank could be authorized by the survivor(s) / nominee to return the pipeline flows to the remitter with the remark ‘Account holder deceased’ and to intimate the survivor(s) / nominee accordingly. The survivor(s) / nominee / legal heir(s) could then approach the remitter to effect payment through a negotiable instrument.

5… Access to the safe deposit lockers / safe custody articles :

For dealing with the requests from the nominee(s) of the deceased locker-hirer / depositors of the safe-custody articles (where such a nomination had been made) or by the survivor(s) of the deceased (where the locker / safe custody article was accessible under the survivorship clause), for access to the contents of the locker / safe custody article on the death of a locker hirer / depositor of the article, the banks are advised to adopt generally the foregoing approach, mutatis mutandis, as indicated for the deposit accounts.

6… Death of Karta in a HUF account :

In case death of the Karta of a HUF account, the banks generally seek a confirmation from the existing members on whether they will be continuing with the HUF. In case they are, then a revised HUF declaration signed by the remaining co-parceners appointing the Karta is obtained. In case not, then the relevant documents relating to partition of the property should be obtained before co-parceners are allowed to withdraw the funds.

7… Time limit for settlement of claims :

Banks are advised to settle the claims in respect of deceased depositors and release payments to survivor(s) / nominee(s) within a period not exceeding 15 days from the date of receipt of the claim subject to the production of proof of death of the depositor and suitable identification of the claim(s), to the bank’s satisfaction.

Share