Nominee: From trustee to owner–a case for legislative reform

livemint.com:

As the Union budget approaches, it presents an opportunity for bold reforms, especially those that directly impact the common citizen. One such area ripe for transformation is the nomination of financial assets, a domain where clarity and empowerment are sorely needed.

For most Indians, succession planning for assets like government small savings schemes (SSS), provident funds, insurance policies, bank deposits, and securities feels assured through nomination. Yet, under the Indian Succession Act, 1925, and relevant personal succession laws, a nominee is deemed merely a trustee. The nominee’s legal role is limited to collecting the deceased’s assets and transferring them to the rightful heirs. This position was reaffirmed by the Supreme Court on 14 December 2023, in the Shakti Yezdani & Anr. vs. Jayanand Jayant Salgaonkar & Ors. case.

Read this | A basic will may not always protect your family. Here's how a conditional will can help.

But does this interpretation align with legislative intent?

For the common citizen, a plain reading of the laws governing financial assets suggests otherwise. 

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

Similarly, as noted by the 137th Law Commission, the Employees’ Provident Fund (EPF) Act, 1952, creates a separate line of succession, excluding certain legal heirs under personal laws if no nominee is specified. This exception further underscores a