Shares, FDs, property, mutual funds: If 1st holder dies will joint holder get money or nominee?
Assets such as shares, fixed deposits, mutual funds can be held with singly or jointly. The question is after the death of one of the asset holders, to whom the money is transferred – nominee or surviving holder?
In case of death of one of the holders of an asset such as shares, bank fixed deposits, bank accounts and mutual fund units, would the asset be transferred to the joint holder or the nominee? In case of single holding of shares, fixed deposits (FDs), bank accounts and mutual funds (MFs) it is clear that if there is a nomination registered, then the money will be given to the nominee(s) after the death of the asset holder. If no nomination is mentioned, then the money will be given to the legal heir(s) of the asset holder.
What happens in the case of a joint/Either or Survivor holding of an asset? After the death of one of the asset holders, to whom the money will be transferred — will it be the nominee or the surviving joint/other holder(s)?
Here’s a look at how transfer of money works in such a scenario for various assets. However, according to experts, irrespective of whether the money is transferred to the nominee or to the surviving joint holder, the rightful owner of the asset in the event of the demise of one of the holder will be the legal heir(s) of the deceased person only, unless specifically mentioned in a will.
As per the rules of the investment, shares can either be held singly or jointly. There is no option of holding shares in ‘Either or Survivor’ mode in case of joint holding of the same. Also, as per current laws, in case of joint holding, only one nominee is allowed.
(a) Single holding
Here, shares will be transferred to the nominee in the event of death of the shareholder if nomination was made earlier. If no nomination was made, then the shares will be transferred to the legal heir(s).
(b) Joint holding of shares
Divi Dutta, Partner, Shardul Amarchand Mangaldas & Co. says, “If the shares are held jointly and a nomination is also made in respect of those shares, then in the event of death of one of the holders, the shares will be transferred in the name of the surviving holder.”
Regarding the nominee of the asset, Dutta says, “The nominee will be entitled to receive the shares when all the joint holders of a share die. In case no nomination is made then the shares will be transferred to the legal heir(s).”
- FIXED DEPOSITS
Fixed deposit or FDs can be held singly or jointly. In case of joint holding, the mode of operation can be ‘jointly’ or ‘either or survivor’ or ‘former or survivor’ and ‘anyone or survivor’ in case of two or more than two holders. To whom the money will be transferred in the event of death of one of the fixed deposit holder depends on the mode of the operation.
(a) Single holding
When the fixed deposit holder dies, the money will be transferred to the nominee if the nomination is registered or to the legal heir(s) if no nomination is registered. However, the final owner of the asset is/are the legal heir(s) as per the will (if any) or relevant succession act. This is explained later in this article.
(b) Joint holding operable on joint basis
There is a slight difference in opinion as to what would happen if one of the joint holder’s dies in a case where there is a nominee also. However, it appears that the money would be transferred to nominee provided the surviving joint holder agrees.
Dutta says, “As per the comprehensive deposit policy of banks, if a fixed deposit is held jointly and one of the holders dies, then the fixed deposit balance will go to the nominee. The bank may however require other procedures to be fulfilled such as submission of requisite documents, consent of the surviving holder etc. This would depend upon every bank’s internal policy requirements. If no nomination is registered, then the balance will be paid jointly to the survivor and the legal heirs of the deceased.”
“In case of bank fixed deposit held on joint basis money will be paid as per the instructions made at the time of opening of account. Usually the instructions are: (a) single (b) either or survivor (c) jointly (d) former or survivor,” says Ashok Shah, Senior Partner, NA Shah Associates LLP.
He adds, “As per section 45ZA of the Banking Regulation Act, payment is to be made to the nominee only if both joint holders die. In the event, account is held under “joint”, and one holder dies, bank may refuse to pay to the survivor on the ground that it is repayable only jointly. In such an event, it may be necessary to procure probate of will or succession certificate, since banks are taking up a position that in absence of either or survivor clause, they will not pay to the joint holder. Payment can be made to nominee only on death of all joint holders. This creates a situation where inspite of there being nomination, banks would be requiring probate/succession certificate. Hence, banks may be persuaded to pay to the nominee with the joint holder consenting it. Usually one nominee is permitted in case of joint holding.”
(c) Joint holding on Either or Survivor basis
“If the fixed deposits are held jointly under ‘Either or Survivor’ mode, then the money will be transferred to the surviving holder, in the event of death of one of the fixed deposit holders. The nominee will get the money only when all the fixed deposit holders die. If no nomination is registered, then legal heir(s) will be entitled to claim it,” says Dutta.
- BANK ACCOUNTS
Similar to fixed deposits, a bank account can be held singly or jointly. Joint holding can be operable ‘jointly’ or on ‘Either or Survivor’ basis. Dutta says, “The rules regarding who will get the money in the event of death of bank account holder are same as those that apply in case of a fixed deposit holder.”
- MUTUAL FUNDS
An investor can invest in mutual funds singly, jointly or jointly with Either or Survivor mode of operation. In the event of death of a unit holder, who will receive the money also depends on the mode of operation of the mutual fund investment.
(a) Single holder
If the nomination is registered in the mutual fund scheme, then the units will be transferred in the name of nominee. Dutta says, “If no nominee is registered, then the units will be transferred in the name of the legal heir.”
(b) Joint holding/Either or Survivor holdings
Dutta says, “Irrespective of whether the mutual fund investments are held jointly or in either or survivor mode, in the event of death of a unit holder, the investment is transferred to the surviving unit holder. The nominee, if registered with the mutual fund house, will be entitled for transfer if both or all unit holders pass away. If no nominee is registered then the legal heirs of the unit holders will be entitled for the claim.”
- PROPERTY/REAL ESTATE
In case of property and real estate, there is no concept of nominee. “The properties can be held either in single holding or joint holding. If one of the joint holders of the property dies, then unless specifically mentioned otherwise in the property deed, the legal heir(s) of that holder will be legally entitled for his share in the property,” says Dutta.
However, in case a property is held in a cooperative society, a nomination can be made with respect to that property.
Shah says, “The property in a cooperative society can be held either in single or joint holding. The mode of operation cannot be either or survivor in case of real estate. However, if a property is held in cooperative society, then one can make a nomination. Upon the death of first holder of the shares of co-operative society, the shares can be transferred to the nominee, irrespective of whether the shares are held in single or joint holding. The nominee will hold the shares on behalf of the estate and the property will go to persons who are entitled under the Will or intestate succession as per personal laws applicable.”
Now the question arises what happens in case the second holder of a property held in cooperative society dies.
Shah says, “If second holder (meaning associate member) dies, his name gets deleted. Bye laws of the society will have to be seen whether associate member has been given right of nomination along with first member. If associate member does not have right to make nomination, then heirs of associate member may have to get probate of the Will or succession certificate to get their name inserted in the share certificate.”
Points to remember
It is important to have nominations in place for one’s assets. However, do keep in mind that the nominee is not the rightful owner of the asset in the event of demise of the asset holder. It will be the legal heir who will ultimately be the owner of the assets of the deceased individual. The legal heir is either determined through testamentary succession, i.e., by way of a will, or by way of operation of the relevant/ applicable succession laws.
Dutta says, “Courts in India have consistently upheld the view that nomination does not override the law in relation to testamentary or intestate succession. The provisions regarding nomination are made with a view to ensure that the estate/assets of the deceased are protected until the legal representatives of the deceased take appropriate steps.”
Shah says, “In case of assets where the mode of holding is in ‘either or survivor’, ‘former or survivor’ or ‘anyone or survivor’, the rightful owner of the asset in the event of the demise of one of the holders will be the legal heir of that deceased person only, unless specifically mentioned in the will. The surviving holder works as the custodian of the assets of the deceased holder.”