Nomination is not inheritance: what every family should know

Ask most families how their wealth will pass to the next generation and the answer is often the same: “Everything has a nominee.” It is a reassuring thought, and nominations are genuinely useful. But a nomination and an inheritance are not the same thing, and confusing the two is one of the most common gaps we see in family estate planning.

What a nomination actually does

A nomination tells a bank, depository, fund house or insurer whom to hand an asset to after the holder’s death. Its purpose is administrative: it allows the institution to release the asset quickly and obtain a valid discharge, without waiting for the family to sort out succession.

In most situations, courts in India have treated the nominee as a custodian who receives the asset on behalf of the legal heirs, rather than as its final owner. Who ultimately inherits is decided by a valid will or, in its absence, by the succession law that applies to the deceased.

Where families get caught out

• A parent nominates one child on a large fixed deposit for convenience, expecting the money to be shared. The other heirs may have a claim, and the nominee is left holding money that is not entirely theirs.
• A will leaves shares to a spouse, but the demat account nominates a sibling. The institution transfers the shares to the sibling, and the family must then resolve the conflict.
• Nominations were made decades ago and never updated after a marriage, birth or death in the family.

There are exceptions. Life insurance, for example, allows certain close family members to be named as “beneficial nominees”, who are entitled to the proceeds in their own right. These rules are specific, which is exactly why each asset should be checked individually.

Making nominations and your will work together

The aim is not to choose between a nomination and a will, but to make them consistent. A simple review usually covers four steps:

1. List every account, policy, folio and property, with its current nominee.
2. Make or update a will that sets out clearly who should inherit each asset.
3. Align nominations with the will wherever possible, so the person who receives an asset is also the person meant to keep it.
4. Keep an organised record that your family can find, and review it after every major life event.

The quiet value of getting this right

None of this is complicated, but it is easy to postpone. Families who take a few hours to align their nominations and will spare the next generation months of paperwork, and sometimes the strain of a dispute, at the hardest of times.