Nominee vs Legal Heir – Who Will Get Your Assets When You Die?

Sumit has investments in FDs, mutual funds, equities and real estate. He has named his wife the nominee for her FDs and real estate and her mother the nominee for mutual funds and equities. He thought that after her death, her assets would be divided according to the nominations, but that’s not the case. Let’s determine how the assets will be distributed after Sumit’s death.

Nominee vs Legal Heir

Nominee

Nomination is a legal arrangement that designates an individual to manage and hold the property in trust for the legal heirs upon the owner’s demise. The property ownership is not transferred to the nominee; he or she is just the trustee of the property until the legal heirs are identified and established according to the Succession Act or a will. Once the legal heirs are determined, the nominee is legally bound to transfer the property to them.

Assigning a nominee facilitates a smooth transition of property ownership when the property owner passes away, ensuring the property is protected until the rightful inheritors can take possession.

Legal Heir

According to the Indian Succession Act of 1925, the legal heirs of a deceased person are typically their spouse, children, grandchildren, or parents. However, an amendment to the Act in 2005 established that married daughters are also legal heirs to their deceased parents.

The legal heir is the individual or group of individuals legally entitled to inherit the deceased person’s assets and property, either under a valid will or according to the applicable succession laws. The deceased person’s will should identify the legal heir as the primary inheritor of the assets. Without the will, property distribution will happen as per the Hindu Succession Act of 1925 rules. 

Rules for Property Inheritance in the Absence of a Will

These rules ensure fair and equitable inheritance among the deceased’s family members.

Class 1 Heirs

Class 1 heirs are the first in line to inherit the property. They include:

• The spouse of the deceased
• The children of the deceased
• The grandchildren of the deceased (if the deceased’s children have predeceased them)
• The parents of the deceased (if the deceased has no spouse or children)
• The mother of the deceased, if the deceased is the son

Class 2 Heirs

If there are no Class 1 heirs, the property will be divided among Class 2 heirs. They include:

• Brothers and sisters of the deceased
• Nephews and nieces of the deceased (if the deceased’s brothers and sisters have predeceased them)
• Lineal descendants of brothers and sisters of the deceased (if the deceased’s brothers and sisters, nephews, and nieces have predeceased them)

Agnates

If there are no Class 2 heirs, Agnates will inherit the property. Agnates are male relatives of the deceased who are descended from a common male ancestor. They are prioritised based on their relationship with the deceased’s father. Agnates include:

• Father’s brother
• Father’s brother’s son
• Father’s sister’s son

Cognates

If there are no Agnates, the property will be distributed among Cognates. Cognates are descendants of a common ancestor, related by blood or adoption, not just through the deceased’s father. They are prioritised based on their relationship to the deceased. Cognates include:
Father’s brother

• Mother’s brother
• Mother’s sister
• Mother’s sister’s daughter
• Mother’s brother’s son

Government Inheritance

When neither Class 1, Class 2, Agnate, or Cognate heirs are present, the property will be delegated to the Government. The Government will administer the property until a legal heir is identified.

So, according to the above example, Sumit named his mother and wife nominees. Since Sumit had not prepared a will, his legal heirs will be determined according to the Hindu Succession Act of 1925. According to the act, the spouse and children are Class 1 heirs.

However, the Karnataka High Court passed a judgement on 18th October 2023 that the mother of a predeceased son will also be considered a Class 1 heir. According to the Hindu Succession Act of 1925, in the absence of a will, all the deceased’s assets will be divided equally among the Class 1 heirs.

When Does the Nominee Get the Assets Instead of The Legal Heir?

Insurance

The Insurance Laws (Amendment) Act of 2015 introduced the concept of a “beneficial nominee. Before this amendment, the nominee in the insurance policy to receive the proceeds upon the policyholder’s death held the legal right to the insurance proceeds. However, the amendment mentioned that the beneficial nominee designated by the policyholder will receive the insurance proceeds upon their death. Thus, the nominee is a trustee and not a legal heir.

EPF

When you open an EPF account, you have to appoint a nominee. After your death, the nominee, not the legal heir, will inherit the money in your EPF fund. EPF rules require you to mention a family member as your nominee.

I hope the article helped you understand the importance of preparing a will. Additionally, if you don’t have a will, I hope it is clear who will be entitled to receive your assets in your absence. If you still have any queries, do mention them to us.