Nominee vs Legal Heir in India: Who Gets the Money After Death?

A nominee is the person who receives your money or assets after your death, but being a nominee does not usually make that person the owner. For bank deposits, shares and securities, the assets belong to whoever is entitled under your Will or, if you leave no Will, to your legal heirs under the succession law that applies to you. Life insurance has one important exception, explained below.

The nominee vs legal heir question matters more now because nomination rules have changed twice since late 2025. Bank customers can name up to four nominees from 1 November 2025. From 1 September 2026, SEBI’s new rules require new single-holder demat accounts and mutual fund folios to have a nominee or a formal opt-out. This guide explains the position for each type of asset, using the official rules and court rulings behind each answer.

Nominee vs legal heir: the short answer

A nominee is someone you choose. You name them in a nomination form with your bank, depository participant, mutual fund, insurer or the EPFO. Their main job is to receive the asset after your death.

For banks and insurers, paying the registered nominee gives the institution a valid discharge of its liability. That is why nomination speeds up claims. The institution does not have to wait for the family to sort out who inherits.

A legal heir is decided by law, not by a form. Who inherits depends on your Will, if you leave a valid one, and otherwise on the succession law that applies to you. The Hindu Succession Act, 1956 and the Indian Succession Act, 1925 are two examples of such laws.

So in most cases, the nominee collects and the people entitled to your estate own. When your nominee is also your only heir, or the person your Will names, there is no conflict. Problems start when they are different people.

Nominee and legal heir compared

Nominee vs legal heir in bank accounts and lockers

Nomination for bank deposits, safety lockers and articles in safe custody comes under the Banking Regulation Act, 1949. The Banking Laws (Amendment) Act, 2025 changed these provisions. The new nomination provisions and the Banking Companies (Nomination) Rules, 2025 came into force on 1 November 2025.

Up to four nominees

You can now name up to four nominees for a deposit account. You can choose simultaneous nomination, where each nominee gets a fixed percentage and the percentages add up to 100. Or you can choose successive nomination, where the next nominee becomes operative only after the death of the nominee placed higher.

For lockers and articles in safe custody, only successive nomination is allowed. Nomination is available only for deposits held in your individual capacity, not in a representative capacity. Central Bank of India’s claim settlement policy says this means no nomination for an account held in the name of a Hindu Undivided Family.

If a simultaneous nominee dies before receiving their share, the nomination fails only for that person. The bank then settles that share using the process for accounts without a nominee.

Under RBI’s October 2025 nomination directions, banks must acknowledge a nomination, cancellation or change within three working days. They must show “Nomination Registered” and the nominee’s name on your passbook or statement of account and on term deposit receipts. A bank cannot deny or delay opening an account only because you choose not to nominate anyone.

What happens when the account holder dies

If there is a registered nominee, the bank pays the nominee after verifying their identity and the death. It cannot insist on a succession certificate, probate or an indemnity bond from the nominee, whatever the amount. This applies as long as no court order known to the bank restrains the payment.

However, the Reserve Bank of India (RBI) requires the bank to tell the nominee in writing that they receive the money as a trustee of the legal heirs. The payment does not affect any claim other people may have against the nominee. That is the bank position in one line: the bank is protected, and the heirs keep their rights.

In a joint deposit account, the nominee’s right arises only after the death of all the depositors.

If there is no nominee

RBI’s September 2025 directions on claims of deceased customers set a simplified process for smaller claims. The threshold is ₹5 lakh at co-operative banks and ₹15 lakh at other banks, or any higher limit a bank fixes. The simplified process applies when there is no nomination or survivorship clause, no Will, no contesting claim and no restraining court order.

Up to the threshold, the bank settles on a claim form, death certificate, identity proof, an indemnity bond and a no-objection letter from non-claimant heirs where needed. It also needs either a legal heir certificate or a declaration about the heirs by an independent person the bank accepts. No third-party surety can be demanded within the threshold.

Above the threshold, the bank asks for a succession certificate, or for a legal heir certificate or sworn affidavit along with the other documents. In that second route, the bank may also ask for a surety. Where there is a Will, banks normally ask for probate or letters of administration, as applicable. A bank may still act on an undisputed Will without probate if it is satisfied that the Will is genuine.

If heirs dispute the claim, the bank settles only on probate, letters of administration, a succession certificate or a court order.

Deadlines and compensation

• Deposit claims must be settled within 15 calendar days of the bank receiving all required documents.
• For delays caused by the bank, it must pay interest of at least the Bank Rate plus 4% a year on the amount due.
• For lockers and articles in safe custody, the bank must process the claim and fix an inventory date within 15 calendar days.
• If it misses that locker timeline, it must pay ₹5,000 for each day of delay.
• A term deposit can be closed early after the depositor’s death without a penalty, even within a lock-in period.

These directions do not cover government savings schemes run through banks, such as the Public Provident Fund and the Senior Citizens’ Savings Scheme. Claims for those follow each scheme’s own rules.

What the Supreme Court said about bank nominees

In Ram Chander Talwar vs Devender Kumar Talwar, decided on 6 October 2010, a son was the nominee on his late mother’s bank account. He claimed all the money, to the exclusion of his brother. The Supreme Court rejected that claim.

The court held that section 45ZA(2) of the Banking Regulation Act only puts the nominee in the depositor’s shoes to receive the money. It does not make the nominee the owner. The money forms part of the deceased’s estate and passes under the succession rules that governed her.

Nominee vs legal heir in demat accounts and mutual funds

SEBI’s new rules from 1 September 2026

SEBI’s circular dated 29 May 2026 replaced all its earlier nomination circulars for demat accounts and mutual fund folios. The new norms apply from 1 September 2026, and they apply to existing accounts and folios as well.

• New single-holder accounts and folios must have a nomination, unless the investor submits an opt-out declaration.
• Nomination is optional for joint accounts and folios, but all joint holders must consent to add or change a nominee.
• You can name up to three nominees. The January 2025 framework had allowed up to 10.
• Only the nominee’s name and relationship to you are mandatory. A date of birth is also required if the nominee is a minor.
• Contact details, percentage shares and identity details of nominees are optional.
• If you do not specify shares, the holdings are split equally, and any odd lot goes to the first nominee.
• No witness is needed if you sign by hand. A thumb impression must be witnessed by two persons.
• You can make, change or cancel a nomination any number of times.

Online nominations are validated through a digital signature certificate, Aadhaar-based e-sign or another recognised e-sign. Two-factor authentication with an OTP sent to your registered mobile number and email address also works. Investors without a nomination, including those who opt out, will get email and SMS reminders twice a year. They will also see a pop-up on nomination at their first login of the day.

The opt-out declaration itself carries a warning. Without a nominee, your legal heirs may need additional legal or court-issued documents, which can delay the transfer. Holdings left unclaimed for a long period may also be transferred to the Investor Education and Protection Fund Authority.

Does the nominee own the shares?

No. In Shakti Yezdani vs Jayanand Jayant Salgaonkar, decided on 14 December 2023, the Supreme Court held that a nominee does not get absolute title to shares or securities. The ruling covers nominations under the Companies Act, 1956, the matching provision in the Companies Act, 2013, and the Depositories Act, 1996.

The court said vesting securities in a nominee serves a limited purpose. It avoids confusion over formalities after the holder’s death and protects the holdings until the legal representatives take the proper steps. In the court’s words, there is no third mode of succession under these laws.

So if you name one child as nominee on a demat account, that child receives the shares. But if your Will or succession law gives your other children a share, they can still claim it from the nominee.

Nominee vs legal heir in life insurance

Life insurance is where the law changed. Nomination here is governed by section 39 of the Insurance Act, 1938.

The old position

In Sarbati Devi vs Usha Devi, decided on 6 December 1983, a man died without a Will. He left his mother, his widow and a son as heirs. He had two life insurance policies of ₹10,000 each and had nominated only his wife.

The Supreme Court held that a nomination under section 39 did not give the nominee any beneficial interest in the money. It only showed who was authorised to receive the amount, so the insurer got a valid discharge. The heirs could still claim the money under the succession law that governed them.

The beneficial nominee rule

The Insurance Laws (Amendment) Act, 2015 substituted a new section 39, with effect from 26 December 2014. Under section 39(7), if you insure your own life and nominate your parents, spouse or children, those nominees are beneficially entitled to the amount. The exception is where it is proved that you could not have given them that title, given the nature of your own title to the policy.

For these family nominees, the law itself now says they are beneficially entitled. That is a clear break from the Sarbati Devi position. Sub-section (7) does not cover other nominees, such as a brother or a friend. It also does not affect any creditor’s right to be paid out of the policy proceeds.

The rule applies to life insurance policies maturing for payment after the 2015 amendment Act commenced. If a beneficial nominee dies after you but before the claim is paid, their share goes to that nominee’s own heirs or legal representatives.

Two more points on insurance nominees

Section 39 lets you change or cancel a nomination by an endorsement or by a Will. But the insurer is not liable for a good-faith payment to the registered nominee unless it has received written notice of the change. So keep the insurer’s records updated, not just your Will.

If the policy matures while you are alive, or all your nominees die before it matures, the money is payable to you or your heirs, legal representatives or the holder of a succession certificate.

EPF nomination: family members come first

For the Employees’ Provident Fund, you make a nomination in Form 2 under paragraph 61 of the EPF Scheme, 1952. You can split your balance among your nominees in any way you choose.

The key restriction is about family. If you have a family when you nominate, the nominee must be one or more family members. A nomination in favour of anyone outside the family is invalid. If you had no family when you nominated, you could name anyone. But once you acquire a family, that nomination becomes invalid and you must make a fresh one.

Marriage also matters. A nomination made before marriage is treated as invalid once you marry, so a fresh nomination is needed.

The scheme defines family broadly. For a male member, it includes his wife, his children, his dependant parents, and his deceased son’s widow and children. For a female member, it includes her husband, her children, her dependant parents, her husband’s dependant parents, and her deceased son’s widow and children.

If a nominee dies before you, their share reverts to you, and you can make a fresh nomination. If a nominee is a minor, you can appoint an adult family member as guardian. If there is no adult in the family, you can appoint someone else.

You can file your nomination online on the EPFO member portal. When EPFO launched e-nomination in 2021, it said the facility needs your mobile number linked to your UAN and completed Aadhaar verification. It also said a nominee could then file an online claim after the member’s death using an OTP on their Aadhaar-linked mobile.

Succession certificate, legal heir certificate and probate

Legal heirs usually need one of these documents when there is no nominee, when there is a dispute, or when a bank claim is above its threshold. They are different documents.

• Succession certificate. It is granted on a petition to the District Judge under the Indian Succession Act, 1925. The petition must list the debts and securities the certificate is sought for.
• Legal heir certificate. It is issued by a competent authority and identifies the legal heirs. Under RBI’s directions, banks accept it for deposit claims both within and above the threshold.
• Probate or letters of administration. Banks normally ask for these, as applicable, when a claim involves a Will. A bank may accept an undisputed, genuine Will without probate.

Common mistakes that cause nominee vs legal heir disputes

• Assuming the nominee will inherit. For bank deposits, shares and securities, the Supreme Court has held that nomination does not make the nominee the owner.
• Letting nominations go out of date. In EPF, marriage makes an earlier nomination invalid. Central Bank of India’s policy also notes that nominees sometimes die before the account holder, which complicates claims.
• Letting your Will and nominations point in different directions. A nominee named years ago can end up holding money your Will gives to someone else, which invites disputes.
• Opting out without a plan. SEBI’s own opt-out form warns that heirs may need extra documents and that unclaimed holdings may go to the Investor Education and Protection Fund Authority.
• Skipping nominee contact details. SEBI’s nomination form notes that your depository participant or mutual fund registrar can reach out to your nominee if you provide contact details.

How to avoid a nominee vs legal heir dispute

1. List every bank account, locker, demat account, mutual fund folio, insurance policy and EPF account you hold.
2. Check who the nominee is on each one, and update any that are out of date.
3. Make a Will that says who should get what, because nomination alone does not decide ownership of most assets.
4. Where you can, make your nominee the same person your Will names, so the two point the same way.
5. When you name several nominees for a bank deposit or investment account, set clear percentage shares.
6. Tell your family where your Will, policy documents and account details are kept.

The bottom line

In the nominee vs legal heir debate, remember one distinction. Nomination decides who receives an asset, while your Will or succession law decides who owns it. The big exception is life insurance, where a spouse, child or parent named as nominee is beneficially entitled under section 39(7). With bank and SEBI rules updated in 2025 and 2026, now is a good time to review every nomination you have.

Frequently asked questions

Sources

• SEBI: Modified norms for nomination in demat accounts and mutual fund folios, 29 May 2026.
• Ministry of Finance (PIB): Nomination provisions of the Banking Laws (Amendment) Act, 2025.
• RBI: Directions on settlement of claims in respect of deceased customers of banks, September 2025.
• Supreme Court: Ram Chander Talwar vs Devender Kumar Talwar, 2010.
• Supreme Court: Sarbati Devi vs Usha Devi, 1983.
• Report on the Supreme Court ruling in Shakti Yezdani vs Jayanand Jayant Salgaonkar, 2023.

This article explains general rules and court rulings. It is not legal advice. Succession outcomes depend on your Will, the personal law that applies to you and the facts of each case, so speak to a lawyer about a specific situation.