Nominee Laws at Crossroads: From Trustee to Ownership, A Case for Reforms

The notion of a nominee being a mere trustee complicates the case for asset succession

- S. Manjesh Roy

As the budget approaches, it presents an opportunity for bold reforms, especially those impacting the common citizen. One area ripe for transformation is the nomination of financial assets, where clarity and empowerment are needed.

For most Indians, succession planning for assets like small savings schemes, provident funds, insurance policies, bank deposits, and securities feels assured through nomination.

Yet, under the Indian Succession Act, 1925, and personal succession laws, a nominee is merely a trustee, limited to collecting the deceased's assets and transferring them to rightful heirs. This was reaffirmed by the Supreme Court on 14 December 2023, in Shakti Yezdani & Anr. vs. Jayanand Jayant Salgaonkar & Ors. But does this interpretation align with legislative intent? For the common citizen, a plain reading of such laws suggests otherwise.

Amendments to the Insurance Act, 1938, effective December 2014, make the nominee "beneficially entitled" to insurance payouts and extend this entitlement to the nominee's legal heirs under Section 39(8). If the intent was to preserve the trustee role, why introduce such changes? This shift indicates legislative intent favouring nominees as owners.