Nominee of Assets — Explained

Most often, we hear the word "Nominee" when opening bank account, investing in shares or mutual funds. Most people assume that the nominee of their bank accounts, insurance etc becomes the owner of the asset after the death of real owner and nominee and legal heir are same. However, it’s not true.

This document covers

Definition of Nominee
Types of accounts where nominees can be appointed
Differences between Nominee, Legal Heir, and Real Owner

1. Definition of Nominee

Nominee is a person authorized by account holder or investor to receive the asset post his death. He holds legal title to an asset on behalf of real owner (beneficial owner).
Nominees will have right to access and manage the assets if the real owner passes away.
Nominee means a temporary custodian of assets.

2. Types of accounts where nominees can be appointed

The nominees can be appointed in following types of assets

Bank Accounts (Savings/Current/Fixed Deposits etc)
Shares
Mutual Funds
Insurance Policies (Life, term, health)
Provident Fund
Pension/Super Annuation
Post office schemes
Bonds/Debentures
Digital gold/SGB bonds/Bank lockers
Unlisted Private limited company

Note 1 : Property, Vehicles cannot have nominee

Note 2 : The asset will be transferred to the nominee post the demise of real owner. The banks, investment agencies, insurance companies are legally discharged once the asset is handed over to nominee. Legal heirs need to claim the same from Nominee.

3. Differences between Nominee, Legal Heir, and Real Owner

S.No	Particulars	Real Owner	Nominee	Legal heir
1	Definition	The person who legally owns the asset	The person who is authorized to receive the asset post the demise of real owner	The person who is authorized to inherit the asset as per will or inheritance
2	Role	He will have control and Legal Title	Custodian or trustee for legal heirs	Final owner and recipient of asset post the demise of real owner
3	Appointed Via	Acquisition, purchase or inheritance	Nomination by real owners through banks, insurance companies, investment companies	Will/Succession law/court order
4	Rights- During lifetime of real owner	Full control, title and benefit	No ownership or control	No ownership or control
5	Rights- Post demise of real owner	Owner shipends	Temporary possession of assets until inheritance	Permanent ownership as per will
6	Transfer of asset	Yes, during the lifetime	No	Yes post the demise of real owner
7	Example	Mr Ram made a Fixed Deposit of Rs 25 lakhs in a bank	Mr Ram made his brother Mr Laxman as his nominee for fixed deposit	Bank gives Rs 25 lakhs to Mr Laxman after the demise of Ram. However Laxman needs to give entire 25 lakhs to Mr Ram’s wife Seetha and his kids as per will