Understanding the concepts of Nominee, Legal Heir & Beneficiary | Meaning & Differences

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No human gets to predict when or how they will meet their maker in the end, which is why ensuring the care and protection of our loved ones is one of the most important decisions we must make and execute before a tragedy befalls us.

So, what should you do for the smooth transfer of your assets to your beloved one?

In order to transmit your financial assets to your loved ones smoothly, you may nominate your intended beneficiaries as nominees and to avoid confusion, the best thing is to make a Will and state the name of your legal heirs or anyone as beneficiaries for every asset in a clear manner in your Will.

Wait Wait.. nominee, legal heir and beneficiary – Are they one and the same? What is the difference between a nominee, an heir or a beneficiary?

Are Nominee, Legal Heir & Beneficiary the same?

Nominee vs Legal heir Vs beneficiary latest

Who is a Nominee?

A person who has been nominated by you to act as the trustee/caretaker of your assets in the event of your death. A nominee may not necessarily be your legal heir or a relative.

Nominee is not the owner but just a Care-taker of your investments. On death of the owner of an asset, a nominee has to receive the asset/money from the concerned bank or financial institution and distribute that to Legal owners. Hence it is the responsibility of the nominee to hand over the proceeds among the legal heirs. Generally,your legal heirs have the final ownership rights on your investments.

Who is a Legal Heir?

An heir is a person who is entitled to receive money/assets from a deceased person based on the default State succession rules. An heir can only be a surviving blood relative or a spouse.

An heir is someone who is set to inherit the property of the deceased when no Will or testament has been made.

Who is a Beneficiary?

A beneficiary is a person who gains financial benefits on your death. He/she can be anyone – a blood relative, your spouse, a friend and even a financial institution (like a bank who has given you a home loan). Heirs can be omitted from being a beneficiary in a trust, will or insurance policy. 

  • A Nominee can be anyone.
  • Legal heirs are your blood relatives by law.
  • Beneficiary can be anyone and gets the ownership rights based on your WILL.

Let’s understand these terms through two scenarios;

Scenario – 1

Mr Prabhu is a senior citizen (85 years) and lives alone in a metropolitan city. His son (Chanchal) is married and settled in the USA. Prabhu stays in his own flat and has a care-taker by name Tanmai. He has been taking care of Prabhu for the last 10 years or so.

Prabhu has nominated Tanmai as the nominee for his bank account. Prabhu has also written a WILL stating that his son Chanchal, who is a legal heir, will be the sole beneficiary of all his assets except for the funds lying in the bank account. Prabhu in his WILL mentioned that Tanmai will be the sole beneficiary for his bank account.

  • Son – Chanchal – Legal Heir & Beneficiary
  • Caretaker – Tanmai – Nominee & Beneficiary

Scenario – 2

Mr Prabhu is a senior citizen (85 years) and lives alone in a metropolitan city. His son (Chanchal) is married and settled in the USA. Prabhu stays in his own flat and has a care-taker by name Tanmai. He has been taking care of Prabhu for the last 10 years or so.

Prabhu has nominated Tanmai as the nominee for his bank account and wishes to transfer the funds in bank account to him. But Prabhu has not written any WILL. On demise of Prabhu, Chanchal who is a legal heir, will be the sole beneficiary of all his assets including the funds lying in his father’s bank account.

  • Tanmai – Nominee
  • Son – Chanchal – Legal Heir & Sole Beneficiary

So, though we use nominee, legal heir and beneficiary interchangeably, they may or may not be the same person.

A word of advice

Above points clearly states that ‘nomination is only a means and not an end’. Legally, the Law of Succession (legal heirs) is given more importance than rules of nomination. Is there any better option than these two??

Draft a WILL‘. Yes, WILL supersedes all laws, rules and regulations. WILL overrides the nomination in case its different. A Will is a legal document that clearly sets out your wishes for the distribution of your assets after your demise. It puts an end to most of the possible legal tussles (especially if you wish to transfer wealth to other beneficiaries who are not your legal heirs).

Kindly make sure that your WILL and Nominations give same direction for your different Assets / investments. This will avoid any potential conflicts among the beneficiaries or legal heirs. For example : If you write a WILL making your children as beneficiaries on your life insurance policy, it is also advisable to make them as Nominees in that particular policy.

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(Post first published on : 5-Spe-2023)

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