Mastering Succession Planning: Death is an inevitable part of life, beyond our control. However, what we can control is our succession planning. One significant challenge faced by family members after the demise of a loved one is the recovery of their property from banks – what is rightfully theirs, hopefully. The deceased would often have opened various bank accounts and held at least some basic financial assets. Although succession to these assets should be straightforward, heirs are frequently forced to run from pillar to post to claim what is rightfully theirs.
Despite these common difficulties, few people organize their estate in a way that facilitates smooth succession and inheritance. This article discusses the process for recovering funds from banks after the demise of an individual account holder and suggests practical measures to smoothen the process.
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Table of Contents
Sole Account
When a bank account is opened in a single individual’s name with a recorded nomination, the process is straightforward. The bank will pay the outstanding balance in the account to the nominee.
However, if no nomination is recorded, the bank will release the funds to the heirs only upon the production of necessary documentation, depending on the account balance. The Reserve Bank of India (RBI) has permitted banks to fix a minimum account balance threshold, considering their risk management systems, up to which claims can be settled through a simple mechanism, requiring only a letter of indemnity.
If the account balance exceeds the bank’s set limit, heirs are often required to produce extensive legal documentation from the court, such as a Grant of Probate, Letters of Administration, or a Succession Certificate, to verify their claims.
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Joint Account
Joint accounts are often opened with a ‘survivorship clause’ (‘either or survivor’, ‘anyone or survivor’, ‘former or survivor’, or ‘latter or survivor’). In such cases, upon the death of an account holder, the balance is paid to the survivor. If there is no survivorship clause and one of the account holders passes away, the banks will pay the amounts jointly to the surviving holder and the legal heirs of the deceased.
If all account holders have passed away, payment is made to the nominee. If no nominee is recorded, the funds are released to the heirs of the last deceased account holder.
The RBI has advised banks that if payment is made to a survivor/nominee, they should, provided they have exercised due care and caution through appropriate documentary evidence and there is no adverse court order, desist from insisting on legal documentation. However, if payment is to be made to the heirs, banks may demand such documentation, often to the heirs’ despair.
Role of Survivor/Nominee
A key aspect often misunderstood is the role of the survivor/nominee after receiving the monies. Nominations ensure that the estate or any other subject matter is protected until the legal representatives of the deceased take appropriate steps and also give banks a valid discharge.
A nominee does not become the owner of the money but holds it as a ‘trustee’ for the legal heirs of the deceased. Similarly, in the case of a joint account, if a survivor receives monies, they hold them as a ‘trustee’ for the heirs of the deceased, unless the survivor proves to the court that the deceased intended the monies as a gift to the survivor.
Identifying Legal Heirs
Who are the heirs legally entitled to the assets? If the deceased left a valid Will, the beneficiary named in the Will is the rightful heir. If the deceased died intestate (without a Will), the heirs are determined according to the personal law applicable to the deceased, such as the Hindu Succession Act, 1956, for Hindus.
An important exception to this rule is in the case of life insurance proceeds when the nominee is a family member such as parents, spouse, or children. In this case, such family members are beneficially entitled to the life insurance proceeds, excluding other heirs.
Practical Steps for Smooth Succession
To ensure the well-being of their family after their lifetime, individuals should provide clear instructions regarding the operation of bank accounts and nomination upon their demise. This can help ensure a smooth transition of funds to the heirs.
In the absence of clear instructions, families might be forced to obtain court documents, such as Probate, even in undisputed cases. Court documents require time, effort, and resources to obtain. This could be avoided by simply recording a nomination.
For instance, in the case of Amol Patil vs. The Manager, Canara Bank & Anr. (2017), the petitioner, entitled to the balances in his deceased grandmother’s bank accounts under her registered Will, argued for a simplified withdrawal process without court documentation. However, the Bombay High Court rejected his argument as he was not a nominee. Consequently, he had to spend considerable time and resources obtaining a court document for his funds. His grandmother could have avoided this by making him a nominee.
Mastering Succession Planning: In Conclusion
Every individual should at least ensure that a nomination is recorded for their bank accounts. Without this safeguard, while the deceased may rest in peace, their heirs might struggle to recover the monies rightfully due to them. Proper succession planning and clear instructions can prevent such scenarios, ensuring a smooth transition of assets to the rightful heirs.
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Author: Sandeep Chatterjee, Advocate
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