Quick answer: A nominee is the person who receives your money first. A legal heir is the person who owns it under the law or your will. In most cases, a nominee is only a trustee and must pass the money to the legal heirs. Insurance has a special rule for spouse, children and parents.
Key Facts
- Since 1 November 2025, banks allow up to four nominees on deposits and lockers.
- SEBI’s 29 May 2026 circular allows three nominees on mutual fund folios and demat accounts from 1 September 2026.
- The Supreme Court has held that a nominee is a trustee, not the owner (Sarbati Devi, 1984).
- Under Section 39(7) of the Insurance Act, a nominated spouse, child or parent is beneficially entitled to life insurance money.
Last updated: October 2026.
Many families believe the nominee is the owner. This belief causes fights after a death. A nominee only helps the bank or fund house pay the right person quickly. The question of who owns the money is a different one. The answer depends on the type of asset, your will and the succession law that applies to your family.
What is the difference between a nominee and a legal heir?
A nominee is a person you name on a form. A legal heir is a person the law or your will names as the owner. These two can be the same person, but often they are not.
| Point | Nominee | Legal Heir |
|---|---|---|
| Who chooses? | You, on the nomination form | The law, or your will |
| Main job | Receive the money and pass it on | Own the money |
| Legal role | Trustee (a person who holds money for others) | Owner of the share |
| Can your will change it? | Will usually prevails over the nomination | Yes, your will decides who inherits |
| Exception | Life insurance: spouse, child or parent may keep it | Other heirs may lose out in that case |
Deepak Gokul holds the CWM® certification, is NISM-Series-XVII: Retirement Adviser Certified, and is an IRDAI Licensed Insurance Advisor. His co-founder, Dr. Uma Rani, is also individually licensed by IRDAI. Together, they help Chennai families plan investments and insurance.
Who gets the money from a bank account?
The bank pays the nominee after the account holder dies. This lets the bank settle the claim fast. But the nominee does not become the owner. A bank nomination does not override a will or succession law.
From 1 November 2025, you can name up to four nominees on a deposit. You can set each share, and the shares must add up to 100%. You can also name nominees one after another. This is called successive nomination. For lockers, nominees can only be named one after another. If you set no share, the bank may split the money equally.
What changed for mutual funds and demat accounts?
SEBI is the regulator for mutual funds and demat accounts. It issued a new circular on 29 May 2026. The new rules start on 1 September 2026. They replace the earlier framework, which had allowed up to ten nominees.
- You can name up to three nominees.
- For new single-holder folios, you must either nominate or sign an opt-out form.
- For joint holdings, nomination is optional.
- If you set no share, the units are split equally among nominees.
- You can change or cancel a nomination any number of times.
SEBI’s opt-out form gives a plain warning. Without a nomination, your family may need more legal papers. This can delay the claim. Long-unclaimed holdings may also move to the Investor Education and Protection Fund.
The nominee here is still a trustee. In 2023, the Supreme Court said a nominee of shares does not become the owner. Nomination is not a third way of inheriting.
Is the rule different for life insurance?
Yes. Life insurance has its own rule. Before 2015, a nominee was only a trustee. Then Parliament added Section 39(7) to the Insurance Act, 1938.
If you nominate your spouse, children or parents, they are beneficially entitled to the money. This means they can keep it. Other nominees, such as a friend or a sibling, remain trustees for the legal heirs.
However, courts have not agreed on every case. High Courts have given different views on how far this rule goes. The Supreme Court has not yet ruled on the amended section. So please check the latest position with a lawyer before you rely on it.
Worked example: who gets ₹12 lakh?
Ravi, a Hindu man in Chennai, has ₹12 lakh in a savings account. He dies without a will. His nominee is his son. His legal heirs are his wife, his son and his daughter. His mother is no longer alive.
The bank pays all ₹12 lakh to the son. But the son is only a trustee. Under the Hindu Succession Act, 1956, the widow, son and daughter are Class I heirs. They usually share equally.
| Person | Role | Final share |
|---|---|---|
| Son | Nominee and legal heir | ₹4 lakh |
| Wife | Legal heir | ₹4 lakh |
| Daughter | Legal heir | ₹4 lakh |
So the son must pass ₹4 lakh each to his mother and his sister. If he refuses, they can go to a civil court. Other communities follow other succession laws, so shares can differ.
How do legal heirs claim the money?
The documents depend on the bank, the fund house and the amount. In most cases, the family starts with a death certificate and the nominee’s KYC papers. If the nominee and heirs differ, the institution may ask for more proof.
In Tamil Nadu, the Tahsildar issues a legal heir certificate. A civil court issues a succession certificate. The Madras High Court has said the Tahsildar’s certificate only shows family relationship. It does not decide who is an heir under personal law.
How can you avoid a family fight?
- Name a nominee on every bank account, mutual fund folio, demat account and policy.
- Choose nominees who match your wishes. Do not name one child alone if you want equal shares.
- Set each nominee’s share in percent.
- Write a will. A will tells the family who owns what.
- Review all nominations after a marriage, a birth or a death.
This post gives general information. It is not legal advice. For a will or a dispute, please speak to a lawyer.
Frequently asked questions
Is a nominee the owner of my bank and investment money?
No, not in most cases. A nominee is a trustee. That means the nominee receives the money so the bank or fund house can pay safely. Then the nominee must pass it to the legal heirs. The Supreme Court has said this in cases such as Sarbati Devi v. Usha Devi. Life insurance has a special rule for spouse, children and parents.
Can a legal heir challenge a nominee?
Yes. If the nominee is not the only legal heir, the other heirs can ask for their share. They can go to a civil court if the nominee refuses. The bank or fund house does not decide this dispute. It only pays the nominee and gets a valid release. The family must settle the ownership question.
How many nominees can I add?
Banks allow up to four nominees on deposits and lockers from 1 November 2025. For mutual fund folios and demat accounts, SEBI allows up to three nominees from 1 September 2026. You can also set each nominee’s share. If you do not set shares, the money is split equally.
Does a will override a nomination?
In most cases, yes. A nomination does not replace a will or succession law. If your will names different people, those people can claim the money from the nominee. Life insurance is the exception. A nominated spouse, child or parent has special rights under Section 39(7) of the Insurance Act. Courts still debate some cases.
What happens if I do not make any nomination?
Your legal heirs can still claim the money. But they must give more documents, such as a legal heir certificate or a court order. This takes more time. SEBI’s opt-out form also gives a warning. Unclaimed mutual fund and demat holdings may move to the Investor Education and Protection Fund after a long period.
Do my family members need a legal heir certificate or a succession certificate?
It depends on the bank, the fund house and the amount. In Tamil Nadu, the Tahsildar issues the legal heir certificate. A civil court issues the succession certificate. The Madras High Court has said the Tahsildar’s certificate only shows family relationship. Please check the exact documents with the bank or fund house.
Not sure your nominations match your wishes?
Book a planning conversation with our Pallikaranai, Chennai team. Fill in the consultation form.
Deepak Gokul specialises in goal-based financial planning, child education planning, SIP investments, mutual fund advisory, and retirement planning for families across the globe. With his Chartered Wealth Manager (CWM®) certification and specialised training in retirement advisory, Deepak helps clients build long-term wealth through structured, disciplined financial planning.
Dr. Uma Rani is individually licensed by IRDAI to advise on health, general, and life insurance. As co-founder of Deepak Wealth Framework, she helps families choose the right insurance cover alongside their investment and retirement plans.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This content is for illustrative and educational purposes only. We deal in Regular Plans.