Who Gets Your Mutual Funds When You Die? Nominee vs Legal Heir
You must have made extensive plans for investments or savings. It includes several options: stocks, mutual funds, property, insurance, pension schemes, PF, debentures, and gold. It is your cushion for retirement. These are the assets you want to leave for your children and grandchildren and any emergencies that come your way.
But what happens to the mutual fund investments that may have grown in value over time after the unit holder's death? Who gets them? Can you choose the persons you want to pass these mutual funds to?
The nominees usually receive the money. However, there is a grey area regarding high-value mutual funds. Many investors may not have necessarily named their legal heirs as nominees.
Such investors don't leave a Will or may not have mentioned the nominees. It can lead to a long and ugly legal battle among the potential beneficiaries in the court.
Read on to know who gets your mutual fund investments after your death.
Difference Between a Nominee and Legal Heir
A nominee is the custodian of your assets. You must nominate someone when registering to invest in mutual funds. It was most likely your parents, children, grandchildren, or spouse.
A nominee is someone you have chosen and nominated to receive the mutual funds after your death.
Nominees also act as the trustees of the assets. But the catch, as per law, is so only until it is legally transferred to the rightful legal heir. It must be noted that nomination for an asset like mutual funds doesn't deem the nominee as the owner of the assets.
A legal heir, on the other hand, is a person who succeeds the deceased. They are entitled to all their assets, including mutual funds.
As per the Indian Succession Act 1925, the legal heir is generally the deceased person's spouse, children, grandchildren, or parents. However, per the 2005 Amendment to the Act, married daughters are legal heirs to the deceased parents' mutual funds.
The Indian judiciary has time and again been fraught with the issue of legal heir vs nominee. It is specifically true regarding the succession of the deceased's assets.
Notably, Indian Courts have held that a legal heir's rights supersede a nominee's rights.
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Nominee |
Legal Heir |
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The nominee is the individual in whose favour another person makes a nomination to authorize them to receive the funds following that person's death. |
The legal heir is the person who inherits the ownership interest in another person's wealth if that person dies. |
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The nominee serves as the trustee, holding another person's property until it is passed to the lawful heir. |
The legal heir is the beneficiary with an ownership interest in the deceased's property. |
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A nominee is an individual authorized to receive the amount following the death of the person who filed the nomination. |
The legal heir is the person who has the absolute right to the departed person's assets or wealth. |
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The legal nominee is determined through nomination. |
Will determines the legal heir. In the absence of a will, succession law applies. |
What Happens When You Have a Will?
When you have a Will in place before you die, you formally mention the persons to whom your assets, including your mutual fund investments, are to be endowed. If you draft a Will, you can choose the person who gets these assets after your death.
The critical thing to note here is that your nominee, who could be anyone, need not necessarily inherit these assets. A Will supersedes all other claims. That is the importance of a Will. And Indians are yet to wake up on this. The emergence of new-age millionaires could clarify who gets the assets as Will's drafting gets further adopted.
For example, let's say you have mentioned person ABC as your nominee in your mutual fund investments.
But when you draft a Will, you can put in the name of person XYZ to whom these mutual funds will be given. This person need not necessarily be your children, spouse, or kin. It can be anyone. As long as the Will mentions them as the inheritors of these mutual funds, no one else can claim the right to them.
Also read, Mutual Fund Redemption: What Is It And How To Redeem Fund Units
What Happens When You Don't Have a Will?
The mutual funds will be transferred to the designated nominee if you do not have a will, as stated by the deceased when purchasing the mutual funds' units. However, there may be times when the nominee differs from the legal heir.
There is no compulsion here. However, in such a situation, the legal heir may need to fight a long legal battle to prove the rightful heir. And gain the rights to mutual fund investments.