Nominee Is Not An Heir

A friend sent me a screenshot on Sunday. Nomination updated across every folio, green ticks all the way down, captioned "estate planning done."

He had told his fund house who to hand the money to. He had not told anyone who owns it. Two different sentences. Only one of them was in his file.

The Supreme Court has settled this twice, in almost the same week of the year. December 1983, on a life insurance policy: the nominee is "only the hand which is authorised to receive." December 2023, on company shares: no absolute title, succession law supersedes the nomination. Forty years and eight days apart, same answer, and it keeps coming back because people keep assuming otherwise.

Put it in rupees. Say Rs 80,00,000 sits across a demat account and a few fund folios. No will. Wife is the sole nominee. Under the Hindu Succession Act the widow, the mother and each child are Class I heirs and take one share each.

She receives Rs 80,00,000. She owns Rs 20,00,000. The remaining Rs 60,00,000 is money sitting in her account that belongs to three other people, and she learns this in the worst month of her life.

Now the part that runs backwards from what people expect. Life insurance, the asset families actually fight over, got carved out in 2015. Name a spouse, parent or child and they are beneficially entitled. Done.

Bank deposits, demat holdings and fund folios, the ones everyone assumes are handled, are not. SEBI now lets you name up to ten nominees with percentage splits. Ten names, neat percentages, and not one of them decides who owns a rupee.

Honest version: nomination buys speed. It lets the money out without a probate queue, it takes four minutes, and it is worth doing. It is simply not the same job as deciding who keeps the money.

The nominee box tells them where to send it. It has never once decided who gets to keep it