“Assets always ultimately go to heirs under succession laws or according to a valid Will,” said Shraddha Nileshwar, head, Will & Estate Planning at 1 Finance.

This distinction can determine whether a family moves on in peace or drags disputes into court.

Custodian, not owner

The purpose of nomination is to ease the procedural transfer of assets when a person dies. When a valid nomination exists, financial institutions can release funds to the nominee against a death certificate, identity proof, and a claim form, without insisting on Wills or succession certificates.

Nomination frameworks under banking, insurance, and market regulations are about procedural efficiency, not ownership.

Even when funds are released to a nominee, ownership does not transfer. The nominee holds the asset as a custodian, while beneficial rights remain with legal heirs or beneficiaries under a Will.

Legal heirs are defined by personal succession statutes such as the Hindu Succession Act or the Indian Succession Act, or by the terms of a valid Will. Under these frameworks, assets are shared among heirs or distributed according to testamentary intent.

Anjali Jhawar, advocate, D.M. Harish & Co., said Indian courts have consistently underscored this point: “A nominee holds the property only in a fiduciary capacity for lawful heirs and not as the ultimate beneficiary.” Even where statutes like Section 45ZA of the Banking Regulation Act grant nominees broad rights to claim deposits, they remain trustees for legal heirs and can be sued if they fail to transfer benefits. “This separation of mechanics and substantive succession rights is crucial. Heirs are the beneficial owners; nominees are conduits,” Jhawar said.

For example, a father names his son as the nominee for his bank account but dies intestate, leaving a spouse, daughter, and an elderly parent. The bank may release the money to the son as nominee, but under succession law, all Class I heirs share the estate equally. If the son tries to keep the entire sum, the other heirs can legally challenge him.

Several judicial precedents reinforce that nominees receive assets in a fiduciary capacity and do not acquire absolute ownership.

Is nomination enough?

Legally, a valid nomination is sufficient for financial institutions to transfer assets. Nileshwar explained, “Their statutory role is limited to discharging liability by paying the nominee, and not determining inheritance rights.”

However, Shweta Tungare, co-founder of LawTarazoo, notes that this doesn’t always translate into automatic payouts. “Many banks still hesitate to release funds solely on the basis of nomination, especially when claim amounts are large, and often insist on a Will, probate, or no-objection certificates from legal heirs.”

This stems from banks practicing ‘defensive banking’. “Banks want to avoid being dragged into future litigation. If they release funds to a nominee who refuses to share them with the legal heirs, the heirs often sue the bank for ‘wrongful settlement.’ Under Section 45ZA of the Banking Regulation Act, payment to a nominee legally discharges the bank. However, banks still fear consumer court cases and civil suits from disgruntled heirs, which is why they add the extra layer of paperwork (NOCs/Indemnity),” she explained.

When disputes arise, such as probate applications or objections from heirs, banks may refuse to release funds without extra documentation.

“By paying the nominee, the banks fulfil their legal duty under statutes like the Banking Regulation Act or Insurance Act, but if red flags arise, they will insist on extra documentation,” said Nileshwar. “They have to prioritize operational efficiency and risk mitigation, as holding funds indefinitely due to disputes could expose them to regulatory penalties or claims for interest.”

Recent Reserve Bank of India (RBI) directions aim to ease this. RBI’s Settlement of Claims in respect of Deceased Customers of Banks states that banks shall not ask for legal documents such as succession certificates, probate, or indemnity bonds from nominees, regardless of the account balance. Banks must implement these procedures by 31 March 2026. However, in cases of disputes among legal heirs or beneficiaries mentioned in a Will, banks can still request probate or a court order.

Declaring a nominee

To minimize disputes and ensure smooth asset transfer, experts recommend following some best practices when declaring nominees:

Align nominations with Wills: “The nominations of different assets should align with the devolution of the assets given in the Will as far as possible to avoid any conflict or confusion. In respect of any particular asset, keeping the nominee and legatee under the Will as the same individual would help avoid any confusion or conflict,” said Jhawar.

Choose trusted custodians: Nominees should be family members who understand their role as custodians, not owners, and will distribute assets fairly.

Update regularly: Major life events, such as marriage, birth, death, divorce, or death of a nominee, should trigger updates to both nomination forms and Wills. “Most financial institutions allow change of nominee through a simple online form,” said Nileshwar.