Your family could be fighting over your money right now, and you might not even know it.
Imagine this: Rajan, a 58-year-old retired software engineer from Noida, spent decades building a careful financial portfolio with mutual funds, stocks, a few fixed deposits, and a PPF account. He named his eldest son Vikram as the nominee for everything. It seemed clear and simple. Or so he thought.
Rajan passed away in 2025. Things did not go smoothly after that. His wife and two daughters did not know they were legally entitled to a share of his assets. Vikram, who was named as nominee on everything, thought it all belonged to him. The bank gave him the fixed deposit, but his siblings sued him.
Three years later, the family is still in conflict.
Stories like this are common. Every year, thousands of families across India find themselves in the same situation, believing everything is in order. The sad part is that a simple Will could have prevented all of it.
The Big Misconception That’s Destroying Indian Families
Many Indians think that naming someone as a nominee means that person will own the asset after the original owner dies. This is not true, and it is one of the costliest legal mistakes people make in personal finance today.
A nominee is not the owner. A nominee is just a custodian. The law considers a nominee to be someone who holds the asset in trust for a short time until the legal heirs decide who will inherit it.
Think about it. The person you named on your mutual fund, your PPF, or your bank FD does not automatically own it. They only receive it first. The legal heirs can still claim it, and the courts will support them.
What the Law Actually Says
The Nominee’s Role Under Indian Law
The rules change a bit depending on the type of asset, and this is often where people start to get confused.
When it comes to bank accounts and fixed deposits, the Banking Companies (Nomination) Rules, 1985 make things clear. The nominee receives the money from the bank after the account holder dies, but this is just to make the process easier. The nominee is supposed to hold the money for the person who actually inherits it under the law. Courts have repeatedly supported this view.
For life insurance, the rules changed significantly after the Insurance Laws (Amendment) Act, 2015. If you name a close family member, such as your spouse, children, or parents, as the nominee, that person actually becomes the real owner of the money. This is one area where nominees have more protection.
For mutual funds, the SEBI (Mutual Funds) Regulations and subsequent AMFI guidelines treat nominees similarly to banks; the nominee collects the units but may still have to account to legal heirs. However, post-2022 SEBI reforms have sought greater clarity and investor protection here.
For shares and demat accounts, the Companies Act and SEBI guidelines tend to favour nominees in practice. Brokers usually transfer shares to the nominee, but legal heirs can still challenge this in court.
For EPF and PPF, the nominee rules under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, are actually stronger. The Supreme Court has held that, in EPF cases, the nominee’s claim overrides even the legal heirs’ claims in many circumstances. PPF follows similar logic.
Here’s a quick summary:
| Asset Type | Nominee’s Practical Role | Can Legal Heirs Claim? |
|---|---|---|
| Bank FD / Savings Account | Receives money from the bank; acts as trustee/caretaker | Yes, the nominee holds in trust for the legal heirs under the succession law |
| Mutual Funds | Gets units transferred; acts as trustee | Yes, ultimate ownership passes to legal heirs under succession law or will |
| Demat / Stocks | Gets shares transferred via transmission | Yes, legal heirs can challenge the nominee’s title in court |
| Life Insurance (post-2015) | Beneficial owner if nominee is family (spouse, child, parent) | Usually, yes, legal heirs lose override‑right if the nominee is a beneficial nominee from the family; a will can, in some situations, influence the overall estate, but not easily override a valid family‑nominee under Section 39 of the Insurance Act |
| PPF | Receives balance on the death of the subscriber | Yes, legal heirs can claim, and if no nominee is appointed, they can apply directly; when a nominee exists, heirs may still pursue a share if the nomination is not exclusive or if there is a will/succession dispute |
| EPF | Strong nominee rights; benefits are typically paid to the nominee | Yes, legal heirs can challenge the nominee in court, but the Supreme Court has recently affirmed that a valid nominee should be paid without insisting on succession certificate, while clarifying that the nominee is still a trustee and heirs may separately claim their share from the amount received by the nominee |
Who Are “Legal Heirs” Anyway?
The answer depends on your religion and the personal law that applies to you.
The Hindu Succession Act, 1956, applies to Hindus, Sikhs, Jains, and Buddhists when someone dies without a will. Usually, Class-I heirs, such as the spouse, sons, daughters, and mother, each receive an equal share of the estate.
For Muslims, inheritance without a will is governed by Islamic (Shariat) succession rules under the Muslim Personal Law (Shariat) Application Act, 1937. Each person’s share is set by classical Muslim law and depends on their relationship to the deceased.
For Christians and Parsis, the Indian Succession Act, 1925, decides how property is shared if there is no will. The law has different rules for each community.
Here’s the main point: Even if you name your eldest son as your nominee, your spouse, other children, and possibly your mother may also have legal rights to your assets. Without a clear Will, your estate could become the subject of disputes.
Real Stories That Explain Why This Is Important
Story 1: The Mumbai Stockbroker
Suresh built his career as a stockbroker in Mumbai and grew a large demat portfolio over 30 years. He made his second wife the nominee for all his accounts, but he also had children from his first marriage. After Suresh passed away, his children from the first marriage went to court, claiming they deserved a share under the Hindu Succession Act. The legal battle lasted for years. Even though the second wife was the nominee, she could not sell any shares because of the ongoing dispute.
Story 2: The Bengaluru Software Engineer
Priya was 34 and single when she opened her mutual fund accounts. She named her mother as the nominee. When Priya died suddenly in an accident, her mother received the units without issue. There was no dispute because Priya had no spouse or children, and her parents were the natural legal heirs anyway. The nominee and the legal heir were the same person. This is the scenario where nominations work perfectly.
The takeaway is that nominations work smoothly when the nominee and the legal heir are the same person. Problems arise when they are different.
The Five Situations Where Nominations Go Wrong
1. If you named your parents as nominees but are now married, your spouse has legal rights under succession law. Remember, nominations do not update automatically when your life changes.
2. If you named your first spouse before getting divorced, this can cause complicated legal issues depending on the type of asset. Some institutions automatically update nominations after receiving a legal notice, but others do not.
3. If you named only your eldest child as a nominee but have more than one child, your other children may feel, and may legally be, entitled to a share as well.
4. You have a blended family. Children from a previous marriage and a current spouse create competing claims that no nomination can resolve cleanly.
5. If you named a friend or sibling instead of a direct family member, your legal heirs can challenge this in court. Remember, a nomination does not override succession law.
What a Will Really Does and Why It Matters
A Will is a legal document that lets you decide, while you are alive and mentally fit, how your assets will be shared after your death. It does not affect your assets while you are alive. The Will only takes effect after you pass away, and sometimes only after probate.
The key difference is that a Will removes the uncertainty that a nomination can cause. If your Will clearly states, “I leave my entire mutual fund portfolio to my spouse, Anita,” that document takes priority. The nominee may still collect the asset first as part of the process, but the Will determines the final distribution.
If you do not have a Will, the law decides how your assets are shared. With a Will, you make those decisions yourself.
What a Will Can Do That a Nomination Cannot
A Will lets you decide what happens to assets that cannot be nominated, such as your jewellery, your house if you own it alone, your car, your business interests, or your cryptocurrency. Nominations only apply to certain financial products.
A Will also allows you to name a guardian for your minor children. No nomination form can do this.
A Will can also set conditions, such as “my son Arjun gets his share when he turns 25.” Nominations do not allow for this kind of flexibility.
How to Fix This: A Simple Checklist
You don’t need a lawyer to identify the problem. But you will need one, or a reliable legal service, to make a valid Will. Here’s what you should do:
Step 1: Make a list of all your financial assets. This includes mutual funds, stocks, fixed deposits, savings accounts, PPF, EPF, insurance policies, property, and business interests. Note down the current nominee for each one.
Step 2: Ensure your nominees align with your wishes. For example, if you want your wife to inherit everything but your parents are still listed as nominees on an old fixed deposit, this could cause issues later.
Step 3: Update your nominations wherever you can. Most banks and financial companies let you do this easily, either online or at a branch. Remember to update them after major life events, such as marriage, having children, divorce, or the death of a nominee.
Step 4: Make a Will. This is essential if you have significant assets, especially if your family members might have competing claims. Your Will does not need to be complicated. It just needs to be clear, properly signed, witnessed, and legally valid under the Indian Succession Act or your personal law.
Step 5: Keep a record. Make sure your family knows that a Will exists and where to find it. If a Will is discovered years after your death and was never executed, it can cause legal trouble.
Step 6: Register your Will (optional but highly recommended). Registering your Will with the Sub-Registrar’s office under the Registration Act, 1908, does not make it more valid, but it does make it harder to challenge and easier to prove that it was properly executed. The cost is low.
A Note on Joint Accounts and Survivorship
If you and your spouse have a joint bank account with ‘either or survivor’ instructions, the surviving person can take over the account after the other passes away. This approach is straightforward and avoids issues with nominees. For married couples, making major accounts joint with survivorship rights is often the easiest solution.
However, this does not address mutual funds, demat accounts, or other assets held individually. You still need a Will for those.
Is a nominee in an insurance policy different from other nominees?
Yes. After the Insurance Laws (Amendment) Act, 2015, a nominee who is a "beneficial nominee", meaning an immediate family member like a spouse, child, or parent, actually acquires the right to the proceeds absolutely. Other nominees remain trustees. This is one of the few areas in Indian law where nominees have genuine ownership protection.
Do I need to probate a Will in India?
Probate is mandatory in certain states; it's required in Mumbai, Kolkata, and Chennai for immovable property. In other states, it's optional but often advisable. Probate is the process by which a court certifies a Will as valid. Even without probate, a registered Will is legally enforceable in most situations.
What if I die without a Will (intestate)?
If you die without a Will, your assets are distributed according to the applicable personal succession law, such as the Hindu Succession Act, the Muslim Personal Law, or the Indian Succession Act. Your nominees will receive the assets from financial institutions, but those assets must then be distributed to your legal heirs. This process can take years and often ends in family disputes.
Can I name my minor child as nominee?
Yes, but you must also appoint a guardian who will manage the assets until the child turns 18. Most financial institutions will require a guardian's details when you register a minor as a nominee.
What happens to my mutual funds if I die without a nominee?
SEBI mandates that AMCs (mutual fund houses) follow their transmission policy, which typically involves the legal heirs providing a succession certificate or a probated Will. This process is cumbersome and can take 6–18 months. Always ensure you have a valid nominee registered.
Can I have different nominees for different assets?
Absolutely, and in many cases, you should. You might want your spouse as a nominee on your joint home loan insurance, but your children on your mutual funds. Just make sure your Will aligns with these intentions and clearly spells out the final intended distribution to avoid confusion.
The Bottom Line
The nominee on your financial accounts is not the same as your legal heir. The nominee collects your assets, while your legal heirs inherit them. If these are different people, your family could face a legal dispute that may take years to resolve, cost a lot of money, and often harm relationships for good.
A Will does not stop nominees from doing their job. It just explains what should happen next. This gives your family clarity instead of arguments. Making a Will is one of the kindest things you can do for those you leave behind.
If you have not made a Will yet, it is the most important financial task you need to do. Do not wait until tomorrow. Do it now.
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Disclaimer:
This article is published for general legal awareness and informational purposes only, and should not be construed as legal advice or a solicitation to act.
About the Author:
Joginder Poswal is an advocate enrolled with the Bar Council of Punjab & Haryana (Enrolment No. PH/9616/2023) and practising exclusively in non-litigation legal advisory, drafting, and consultation under Indian law.
For more information, please refer to the contact details provided on this website.