Legal heir
The person entitled by law to a deceased person's estate — distinct from a nominee, who only holds the money in trust until it reaches the rightful heirs.
In plain language
When somebody dies, their money has to go to somebody. If there is no nominee and no Will, it goes to the legal heirs — the people the law recognises as entitled to the estate.
The workbook draws a sharp line between a legal heir and a nominee. A nominee is only a custodian of the asset owner's money and does not have any ownership rights. In the absence of nomination, it can be expensive and time consuming for the legal heirs of the deceased to get their money.
And where there is no Will at all, the workbook is direct about where the assets end up: in the absence of a Will, the transfer will be made only to legal heirs.
How it works
Three routes decide who actually receives a deceased person's money, and the workbook lays them out in order of priority in practice:
- A nominee is registered — the nominee receives custody first, but only to pass the money on to the legal heirs, since a nominee has no ownership rights of their own.
- A Will exists — the assets are distributed as the Will directs.
- Neither exists — the transfer is made only to legal heirs, following the applicable succession law.
To actually claim the assets, the workbook says legal heirs have to approach the relevant institutions — banks, depositories, mutual fund companies, insurance companies — with the death certificate along with a legal heir's certificate, to have the assets transferred into their names.
A worked example
Suresh dies without a Will. He had earlier invested in a bank FD and named his friend Ramesh as nominee.
Ramesh receives the FD proceeds from the bank as nominee — but, as the workbook is explicit, he is only a custodian with no ownership rights. He must pass the entire amount on to Suresh's legal heirs; if he does not, the heirs would need to claim it in a court of law instead.
Suresh also held a Rs 3,00,000 balance in a savings account with no nominee registered at all. For that account, his legal heirs — say, his wife and two children — have to approach the bank directly with the death certificate and a legal heir's certificate to have the balance transferred into their names, because no nominee stands between them and the bank.
Why NISM asks about it
Chapter 7 (Pension, Retirement and Estate Planning) sets out the nominee-versus-legal-heir distinction under Nomination, and returns to legal heirs under the procedure for transferring a deceased person's wealth. Expect a question testing what happens to an account with no nominee and no Will — the legal heirs, and nobody else, are entitled.
Common exam traps
- A nominee is not a legal heir, and a nominee's rights are custodial, not ownership rights.
- No Will and no nominee means legal heirs, by default.
- A legal heir still needs a legal heir's certificate, plus the death certificate, to actually collect the assets — being the rightful heir in law does not by itself move the money.
- Do not confuse this with the legal heir certificate itself, which is the document; "legal heir" is the person the document identifies.
Check yourself
1.What rights does a nominee have?
- a)Full ownership of the money on the death of the account holder
- b)Only the right to have custody of the money — a nominee is a custodian with no ownership rights and must pass the money to the legal heirs
- c)Ownership, provided the nomination was made in writing
- d)No rights at all; the nomination is merely a formality
Show the answer
Answer: (b) Only the right to have custody of the money — a nominee is a custodian with no ownership rights and must pass the money to the legal heirs
"A NOMINEE is a person who receives the RIGHT TO HAVE CUSTODY of the money on the death of the account holder. A nominee is ONLY A CUSTODIAN of the asset owner's money and DOESN'T HAVE ANY OWNERSHIP RIGHTS." The booklet's example settles it: "Suresh invests in an FD and nominates his friend, Ramesh... On Suresh's death, Ramesh receives the money as his nominee. RAMESH NEEDS TO SUBSEQUENTLY TRANSFER THE ENTIRE AMOUNT TO SURESH'S LEGAL HEIRS; otherwise his heirs will need to claim the amount in the court of Law." So nomination answers "whom may the institution pay?", while a Will answers "who owns it?" — they are complements, not alternatives. Option (d) understates it badly: nomination matters a great deal, because "in the absence of nomination, it could be EXPENSIVE AND TIME CONSUMING for the legal heirs of the deceased to get their money", and one should "fill in the nomination details while opening ANY account."
2.A man has nominated his wife on all his bank deposits and says no Will is needed. Is he right?
- a)Yes — nomination transfers ownership to the nominee
- b)No — a nominee is only a custodian with no ownership rights, so nomination decides whom the bank may pay while a Will decides who owns the assets; both are needed
- c)No — nomination is invalid unless accompanied by a Will
- d)Yes, provided the nomination is registered
Show the answer
Answer: (b) No — a nominee is only a custodian with no ownership rights, so nomination decides whom the bank may pay while a Will decides who owns the assets; both are needed
The two instruments answer different questions. Nomination answers "whom may the institution pay?" — a nominee "receives the right to have CUSTODY of the money" and is "ONLY A CUSTODIAN... and DOESN'T HAVE ANY OWNERSHIP RIGHTS." A Will answers "who owns it?" — it is "a written legal declaration of desires to distribute assets of the deceased after his or her demise." The Suresh and Ramesh example shows the gap in operation: the nominee receives the money and "needs to subsequently transfer the entire amount to Suresh's LEGAL HEIRS." Option (c) overstates in the other direction — nomination is perfectly valid on its own and highly worthwhile, since "in the absence of nomination, it could be expensive and time consuming for the legal heirs... to get their money." Do both: nomination gets the money out of the counter quickly, and the Will settles who is entitled to it. Recall also from Chapter 5 that multiple nominations are allowed in demat accounts.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Estate planningDeciding during your lifetime who is to receive which of your assets after your death, and documenting it — mainly through a Will and nominations — so heirs can claim them easily and cheaply.
- Legal heir certificateA certificate issued by the Tehsildar identifying the living heirs of a deceased person, used for claims such as pension, provident fund and gratuity where no nominee exists.
- NomineeThe person you name to receive custody of your money or securities when you die — a custodian who must pass the asset to the legal heirs, not the owner of it.
- WillA written legal declaration of how a person wants their assets distributed after death. Registration is not compulsory but preferable; without a Will, assets pass under personal laws.