Understanding the role of nominee in bank accounts
You typically build assets so that your next generation can lead a life of financial security. To enable you to ensure your dependents don’t lose out on what’s rightfully theirs, banks offer the nomination facility. While opening Savings Account or Fixed Deposit Accounts, you need to fill in a form with various sections, one of which is the nomination declaration section. This facility is provided with all kinds of financial investments and assets. In this article, we have highlighted the reasons why you should appoint a bank account nominee.
A nominee is an individual designated to receive the funds in one’s account, upon their demise. When the primary accountholder dies, the bank passes on their bank account proceeds to the nominee. The bank essentially transfers the balance funds from your account to the nominee’s account. The nominee needs to provide details such as their bank name, account number, etc., and an ID proof document. However, they need not provide any additional proof such as a court order or succession certification.
If you do not select a nominee, the settlement of your funds become cumbersome. Per the Reserve Bank of India (RBI), the number of unclaimed deposits are gradually increasing. With nomination, the bank can process your assets to the nominee without hassles.
By adding a family member as your nominee, you can rest assured that your family is financially secure in your absence. Declaring your nomination allows your dependents like your aging parents, spouse and children to manage their finances without having to depend on others financially.
If you do not register a nominee, your legal heir becomes entitled to claim the assets. Also, if the legal heir is not the nominee, they must endure a great ordeal to claim their succession rights and assets. As the account holder, you can ensure your dependents don’t have to undergo such hassles by adding a nominee at the time of account opening or any time after the account is active.
Besides knowing the nomination meaning in banking, it is important to understand the difference between nominees and legal heirs. A legal heir is an individual whose name is mentioned in the deceased person’s will. Conversely, a nominee is a custodian of accounts, responsible to ensure that the legal heir of the account holder gets the account holder's money. The rights of the legal heir supersede the rights of the nominee. In most cases, the nominee is the legal heir.
Now that you know what nominee in bank account means, let us understand who you can designate as nominees for bank accounts. A nominee can be:
As the account holder, you should know the following nomination rules:
The role of nominee in bank accounts is incredibly important as the nominee ensures that your rightful heirs receive their inheritance without hassles. Adding a nominee takes almost no time. You can always change, remove, or add nominees once the account is active.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.