Fixed deposits offer safe and guaranteed returns on your investment at the end of the maturity period. But what happens if the depositor passes away before the end of the term? This is where the nominees vs legal heirs debate becomes crucial. While knowing bank and post office FD interest rates is crucial, understanding the difference between nominees and legal heirs in FD accounts is equally important. We cover this nominee vs legal heirs debate in detail in the following sections.
What is the meaning of a nominee
A nominee, in banking terms, indicates the custodian or caretaker of an account. In other words, they are the ones designated to act on behalf of the FD account holder upon the account holder’s demise. The nominee is in charge of ensuring the fixed deposit payout reaches the legal heirs of the account holder. While there may be instances where nominees are also legal heirs, their status as nominees implies that they are just caretakers of the FD corpus, not its owners.
What are legal heirs
A legal heir is a person recognised by a will or succession laws as entitled to receive the assets and property (and FD proceeds) of the deceased. A will is a legally binding document that outlines the wishes of the deceased regarding the distribution of property and assets after their demise. According to the Hindu Succession Laws, if a man dies without a will, his property and assets will be passed on to Class I heirs. Otherwise, their estate is passed on to Class II heirs. The assets and property of a deceased woman are equally divided between her husband and children.
Fixed deposit nominee vs legal heir
To understand the nominee vs legal heir debate, we have drafted the following table outlining comprehensive differences between these two concepts:
| Parameter | Fixed deposit nominee | Fixed deposit legal heir |
| Meaning | Individual nominated as a custodian to receive the FD maturity amount in the event of the account holder’s death. | An individual (s) who has the legal right to inherit the property and assets of the deceased under the laws of succession or a will. |
| Ownership of assets | Nominees are mere caretakers of the FD corpus. They are not the owners of the maturity proceeds. | Legal heirs are the rightful owners of the matured FD corpus. |
| Asset transfer | Nominees do not have to fulfil extensive legal formalities to get the FD maturity amount. | Legal heirs have to present a set of legal documents like death certificate, probate order, and will of the deceased to prove eligibility for the matured FD corpus. |
| Entitlement | Fixed deposit account holders can choose any individual as a nominee for their account. | A legal heir is determined by the prevailing laws of succession or a will drafted by the deceased. |
Also read: How to break your FDs before maturity
Importance of a nominee for the fixed deposit
Fixed deposit investors appoint nominees to their accounts to ensure that their hard-earned funds do not go to the government in the event of their untimely demise. Instead, they are transferred to someone the account holder trusts. The goal is to ensure that the nominee will guarantee equal distribution of the asset among the legal heirs. For FD accounts without nominees, legal heirs have to first prove their relationship to the investor and a death certificate copy to claim the FD corpus.
Importance of a legal heir for the fixed deposit
Investors should specify legal heirs in their wills. When depositors specify the legal heir, all proceeds from the assets and property held by the deceased are passed down to the legal heir through the nominee. Drafting a will can help in the easy distribution of assets without complications.
Things to keep in mind when choosing a nominee
Now that you have a better understanding of the nominee vs legal heir discussion, here are a few things you should consider before picking a nominee for your FD account:
- Ensuring details are precise
All nominee details listed on the FD form should be correct. This includes the correct spelling of the nominee, address details, DOB, etc. If there are multiple nominees, the account holder must specify the percentage share of each nominee. Moreover, if the FD account is in the name of a minor, an adult member of the family needs to be listed as a guardian. - Updated set of details
Review your nominee details periodically to ensure they are always up to date. For instance, if the nominee has had a name change recently, it is best to update the same for the FD account to avoid future claim issues. Similarly, if your FD nominee passes away, you need to appoint a new nominee and update their details across documents. - Selecting the nominee carefully
Legally, you can pick anyone as a nominee to your FD account. However, it is always best to choose close family members and legal heirs as nominees. Selecting your legal heir as your FD nominee simplifies the nominee vs legal heir debate and helps avoid future succession rights issues.
Also Read: How to download your Fixed Deposit receipt
Who gets the maturity proceeds
In the nominee vs legal heir debate, it is also important to understand who gets access to the FD corpus upon the unfortunate demise of the account holder. Here’s an overview of the rules that apply under different circumstances:
- Scenario 1: If both the nominee and legal heir are listed
In such cases, the fixed deposit proceeds go to the nominee and not the legal heir. The nominee will act as a trustee for the funds until the deceased legal heir claims them. - Scenario 2: If neither a nominee nor a legal heir is listed
The bank will try to locate the deceased depositor’s legal heirs and next of kin. If no legal heirs are found, the funds are deposited into a separate account. Any individual claiming the funds has to prove their relationship with the deceased depositor with a succession certificate - Scenario 3: If the depositor does not have a will
The legal heir of the deceased depositor has to present a court-ordained transfer order to show entitlement to the funds.
Conclusion
Understanding the nominees vs legal heirs debate in FDs is essential to help account holders make informed choices. While the nominees act as trustees to the proceeds, the legal heirs are entitled to the ownership of the funds as per the succession laws. This knowledge helps investors ensure that their financial assets are transferred according to their wishes without disputes or legal issues.
High-yield FDs can boost your savings, helping secure the future expenses of your legal heirs in the event of your untimely demise. The Bajaj Finance FD offers a high interest rate of 8.60% p.a. and an easy online nomination facility to help you earn more and designate trusted caretakers for your funds without any hassles.
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