‘A nominee is a legal heir’ is a broadly mistaken dilemma in succession. A common misconception exists that a nominee automatically becomes the absolute owner of money or property after the death of the account holder. It is true that nomination is an irreplaceable step in the process of succession planning, but not a succession instrument per se. However, nominations complement the tools for succession like Will, Private Trust and Family Settlement Agreements.

What is Nomination?

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Nomination is a process whereby the account holder/investor (also known as ‘nominator’) appoints a person who can receive the assets upon his/her demise. A nominee is merely a custodian for the assets of the nominator after his demise. Nominee only holds the assets till the distribution of assets to the original legal heirs of the deceased. Instead, legal heirs are the rightful owners and beneficiaries of the nominator’s assets, to whom the ownership shall transfer as per a valid will or the prevailing succession laws. Nominees enjoy limited rights over assets, whereas legal heirs have full rights and responsibilities over the assets. Nominees cannot contest ownership legally as enjoyed by legal heirs.

The law is settled through landmark Supreme Court judgments such as Sarbati Devi vs. Usha Devi (1984) and Shakti Yezdani vs. Jayanand Salgaonkar (2017), where the Supreme Court held that a nomination does not give the nominee an absolute title over the nominated property. However, succession as per intestate law or a succession instrument, if any prevails.

Nominee vs. Legal Heir

Distinction between a ‘nominee’ and a ‘legal heir’ is crucial in this legal dilemma.

1. Legal Heir (The Owner): A legal heir is an individual who is legally entitled to receive an absolute ownership of the deceased’s estate as determined by the intestate succession laws or the testamentary succession instrument, if any. Legal heir receives permanent rights attached to the estate including power to sell, transfer, or rent the inherited property. This is the only affirmative title recognized by courts.

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2. Statutory Exceptions: Insurance claim is an exception where succession aligns with the nomination provided. Under the Insurance Laws (Amendment) Act, 2015, ‘beneficial nominees’ (immediate family) gain absolute ownership.

3. Real Estate: In Co-operative Housing Societies, nominee receives the immediate possession post demise of deceased person, However, he/she must subsequently pass the ownership to the legal heir as per Will/intestate succession laws.

4. Shares: Following the Shakti Yezdani case (2023), it is settled that nomination in shares does not grant absolute ownership to the exclusion of heirs.

Nomination for Digital Assets

The rise of digital assets like cryptocurrencies, NFTs and monetized digital accounts has not been followed by the legal advancements required. Digital assets like cryptocurrencies, NFTs and digital keys lack a formal nomination framework unlike traditional assets, making succession the only way for ownership.

Most decentralized wallets (like MetaMask, Trust Wallet) do not have a “nomination” field. Even on centralized exchanges (CEXs), a nominee is legally a “custodian” who must eventually hand assets to the rightful heirs.

While a bank account without a nominee can be recovered via a Succession Certificate (taking 6–12 months and 2-3% in court fees), a self-custody wallet without a private key is unrecoverable, regardless of legal heirship.

Conclusion

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The concept of nomination does not confer ownership on the nominee, ownership vests on the legal heirs as per applicable succession laws or succession instrument, if any. Protect wealth by moving beyond simple nominations. Avoid a ‘single point of failure’ in estate planning. Don’t let legacy turn into a tug-of-war between beneficiaries.

Why Choose Ascentium?

At Ascentium, our dedicated team of succession planners understand the roots of a family and the values that drive the legacy forward. We help families plan succession holistically to avoid any legal loopholes and secure wealth for future generations. Our dedicated team of succession planning experts, legal professionals, tax and financial advisors are happy to assist you in both family and business succession planning. To learn more about our services, you can write to us at info@incorpadvisory.in or reach out to us at (+91) 77380 66622.

Authored by:
Megha Gala | Family Office

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