A nominee is not an heir

A friend sent me a screenshot on Sunday. Nomination updated across every folio, green ticks all the way down, captioned "estate planning done."

He had told his fund house who to hand the money to. He had not told anyone who owns it. Two different sentences. Only one of them was in his file.

The Supreme Court has settled this twice, in almost the same week of the year. December 1983, on a life insurance policy: the nominee is "only the hand which is authorised to receive." December 2023, on company shares: no absolute title, succession law supersedes the nomination. Forty years and eight days apart, same answer, and it keeps coming back because people keep assuming otherwise.

Put it in rupees. Say Rs 80,00,000 sits across a demat account and a few fund folios. No will. Wife is the sole nominee. Under the Hindu Succession Act the widow, the mother and each child are Class I heirs and take one share each.

She receives Rs 80,00,000. She owns Rs 20,00,000. The remaining Rs 60,00,000 is money sitting in her account that belongs to three other people, and she learns this in the worst month of her life.

Now the part that runs backwards from what people expect. Life insurance, the asset families actually fight over, got carved out in 2015. Name a spouse, parent or child and they are beneficially entitled. Done.

Bank deposits, demat holdings and fund folios, the ones everyone assumes are handled, are not. Since 1 Sep 2026, under SEBI's circular of 29 May 2026, you can name up to three nominees with percentage splits, and a new account carries a nomination unless you opt out. Three names, neat percentages, and not one of them decides who owns a rupee.

Honest version: nomination buys speed. It lets the money out without a probate queue, it takes four minutes, and it is worth doing. It is simply not the same job as deciding who keeps the money.

The nominee box tells them where to send it. It has never once decided who gets to keep it

Receiving and owning, in one picture

The opening's family has four Class I heirs: the widow, the mother and two children. Under the Act's rule of one share each, the Rs 80 lakh splits evenly, whatever the nomination form says about who receives it.

The nominee holds Rs 60 lakh of that in trust for the other three. If the family agrees, the money moves without friction. If it does not, the nomination gives her no defence: succession law decides.

How the law got here

1. Dec 1983Supreme Court, life insurance

   A nominee is the hand authorised to receive, not the owner.

2. 2015Insurance law amended

   A spouse, parent or child named as nominee on a life policy is beneficially entitled to the money.

3. Dec 2023Supreme Court, company shares

   Nomination under company law gives no absolute title; succession law prevails.

4. 10 Jan 2025SEBI revamps nomination

   Up to ten nominees for a demat account or fund folio, with percentage shares.

5. 1 Sep 2026SEBI's modified norms apply

   Up to three nominees, nomination by default on new single accounts unless you opt out.

The 29 May 2026 circular replaced the Jan 2025 framework, which had allowed up to ten nominees, from 1 Sep 2026. Beyond the limit of three and the default nomination on a new single holder account or folio, it adds one more rule: if no percentages are given, the holding is split equally, with any odd lot going to the first nominee. Existing accounts are covered too. None of these changes touches ownership. They make the money reach the people named faster. Who keeps it is still a question for a will or succession law.

Your own family's numbers

Two different jobs, two different documents

1. NominationTells the depository or fund house whom to transmit to. Fast, no court process.
2. TransmissionUnits or shares move to the nominee once the death is recorded with the depository or fund house.
3. SuccessionA will, or the succession law that applies, decides who owns each rupee.
4. SettlementThe nominee passes on each heir's share, or the heirs claim it.

None of this makes nomination less worth doing. It is the reason a family can get money out in weeks instead of months. The free Learn module on the SEBI regulatory framework covers how depositories, fund houses and SEBI's investor protection rules fit together, including nomination and transmission. Related: the Rs 1.25 lakh you forget every April.