India: ‘Show Me The Money!': What Do You Do With Bank Accounts When Your Loved One Dies?

Last Updated: 31 August 2017
Article by Rishabh Shroff

People die. That is something beyond our control. But what we can master is our succession planning. One challenge that family members face after the demise of their loved one is the recovery of their property from banks – what is rightfully theirs (hopefully). The deceased family member would inevitably have opened various bank accounts and have at least some basic financial assets. Although succession to these should be straightforward, in many cases heirs are forced to run from pillar to post to seek what is rightfully theirs.

Although these difficulties are faced by practically every family, few people organise their estate in a manner that facilitates smooth succession and inheritance. In this article, therefore, we discuss the process for recovery of monies from banks after the demise of an individual account holder, and suggest some practical means by which the process may be smoothened.

Sole Account

Where a bank account is opened in a single individual's name, and a nomination is recorded, the process is straightforward and the bank will pay the balance outstanding in the account of the deceased depositor to the nominee.

If no nomination is recorded, the bank will pay the money to the heirs only upon production of necessary documentation, depending on the amount of the balance in the account. In this regard, the Reserve Bank of India (RBI) has permitted banks to fix (keeping in view their risk management systems) a minimum account balance threshold up to which claims can be settled through a simple mechanism, without insisting on production of any documentation other than a letter of indemnity.

If, however, the amount in the account exceeds the said limit (set differently by each bank), banks inevitably ask the heirs to produce onerous levels of legal documentation from the Court, such as a Grant of Probate (Probate), Letters of Administration, or a Succession Certificate to satisfy themselves of the veracity of the heirs' claims.

Joint Account

It is common for joint accounts to be opened with a 'survivorship clause' ('either or survivor', 'anyone or survivor', 'former or survivor' or 'latter or survivor'). In such cases, upon an account holder's demise, the balance in the account would be paid to the survivor. In case there is no survivorship clause and one of the account holders passes away, then the banks would pay the amounts to jointly the surviving holder and the legal heirs of the deceased person.

In either case, if all holders have passed away, then payment will be made to the nominee or if no nominee is recorded, then to the heirs of the last deceased account holder.

The RBI has advised banks that if payment is to be made to a survivor/nominee as above, then, so long as the bank has exercised due care and caution, through appropriate documentary evidence, and there is no adverse Court order, the bank should desist from insisting on production of legal documentation. If, however, the payment is to be made to the heirs, the bank may demand production of such documentation (and they frequently do so, much to the despair of heirs).

Role of Survivor/Nominee

A key aspect that is often confused is the role of the survivor/nominee after s/he has received the monies as above. As discussed in one of our earlier Blog posts, nominations are made with a view to ensure that the estate or any other subject matter is protected till the legal representatives of the deceased take appropriate steps, and also to give the banks a valid discharge.

A nominee, thus, does not become the owner of such money but holds it as a 'trustee' for the legal heirs of the deceased person. Similarly, in the case of a joint account, if a survivor receives monies, he holds them as 'trustee' for the heirs of that holder (who may include the survivor), unless the survivor proves to the court that the deceased holder intended that the monies be gifted to the survivor (and not be held by him as trustee).

Who are the heirs legally entitled to the assets? If the deceased has left a valid Will behind, then the beneficiary named under the Will would be the rightful heir. If the deceased has died intestate (without a Will), then the heirs would be determined in accordance with the personal law applicable to the deceased (e.g., Hindu Succession Act, 1956, for Hindus).

Do bear in mind that an important exception to the above rule is in the case of life insurance proceeds when the nominee is any of the deceased's family members such as parents, spouse, or children. In this case, such family members are beneficially entitled to the life insurance proceeds, to the exclusion of all others, including other heirs.

What should you do?

It is vital that every individual who cares about their family's wellbeing after their lifetime, ensures that clear instructions in respect of the operation of bank accounts and nomination upon his/her demise are provided to the banks and other institutions to ensure a smooth transition of monies to the heirs.

In the absence of these, families could very well be forced to obtain documents from the Court, e.g. Probate. Unfortunately, even in situations where there is no dispute regarding the deceased's assets, Court documents require reasonable time, effort and resources to obtain. This could be avoided by the account holder simply recording a nomination.

For instance, in the recent case of Amol Patil vs. The Manager, Canara Bank & Anr. (2017)1, the petitioner, who was entitled to the balances in his deceased grandmother's bank accounts under her registered Will, sought to argue that he should be allowed to withdraw money from these accounts through a simplified process, and without production of a Court document. However, the Bombay High Court rejected his argument as he was not a nominee. As a result, the petitioner ultimately had to spend considerable time and resources in obtaining a Court document for his monies. His grandmother would not have intended this, and could have avoided it simply by making him a nominee.

In conclusion, everyone should at least ensure that a nomination is recorded in respect of their bank accounts. Without this safeguard in place, the deceased will hopefully rest in peace, but his/her heirs might very well lose their peace of mind in trying to recover monies rightfully due to them.

Footnote

[1] Order dated April 20th, 2017 in Writ Petition no. 12350 of 2015

* The author was assisted by Shaishavi Kadakia, Senior Associate

Originally published July 5, 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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