Importance Of Nominee For Bank Account
05 Jun 2023

Importance of Nominee for Bank Account

Understanding the role of nominee in bank accounts

Key Takeaways

  • In banking, a nominee is a person designated to receive the amounts in one’s bank account upon their passing.
  • You can typically assign only a single nominee on your individually-held bank accounts.
  • A nominee may or may not be a legal heir.
  • The rights of a legal heir supersede those of a nominee.
  • The nominee acts as the trustee of the funds and must transfer them to the legal heir.

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.

What is 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.

Importance of having a Nominee for Bank Account

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.

Nominee Vs Legal Heir

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.

Nominee Meaning in Banking – Who can you appoint as a Nominee?

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:

  • Any person you trust.
  • A family member like your spouse, children, sibling, etc.
  • A relative, friend, or will executioner.

Important Nomination Rules

As the account holder, you should know the following nomination rules:

  • Typically, you can appoint a single nominee to each bank account. If you have multiple bank accounts, you can appoint different nominees.
  • If the nominees are not the legal heirs, they cannot use the funds. They can only act as trustees and must transfer the funds to the legal heirs.
  • If the nominee is a minor, you must appoint a guardian.
  • If the nominee is a minor at the time of the account holder's death, the bank shall hand over the funds to the guardian.
  • You can nominate a Non-Resident Indian (NRI) as your nominee for bank account. The bank will transfer the money overseas after obtaining the necessary permits from the RBI.
  • You can change or remove an existing nominee by submitting forms DA2 and DA3, respectively.
  • In the case of joint accounts, both account holders must agree to the nominee-related changes.
  • You must also appoint nominees for your locker account.

Final Note

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.