♣ In case of sole account
In case of a death of a sole depositor, the bank first checks whether the account has a nominee or not.
♦ In case there is a nomination:
In case of nomination, the bank can transfer the proceeds to the nominee considering him or her to be the trustee of the legal heirs. This transfer happens only after some paperwork wherein the nominee has to submit his identity proof and death certificate of the deceased person.
The bank also checks if there is any restricting order from a competent authority against transferring the asset to the nominee. Although the Reserve Bank of India (RBI) stipulates a time frame of 15 days for a bank to process the claim after it receives it, the bank cannot consider the claim complete until it has done suitable identification of the claimants. Hence, the process often takes a long time to get completed.
A few points to remember. The nominee is the contact person in case the depositor dies before maturity. If the nominee and the legal heir are not the same, then the nominee has no rights over the asset. He/she simply acts as a custodian and makes sure that the deposit reaches the proper legal heir. However, the legal heir can only claim the amount when it is specified in the Will or if he/she inherits the money.
In case you have not mentioned a nominee while investing in the FD, you can still do so now before the maturity of the FD.
♦ In case there is no nomination:
In case the bank account does not have any nominee, the process will take a much longer time and is more painful. In case of deposits without a nomination, the maturity amount will be payable to the legal heirs of the deceased or any one of them as mandated by all the legal heirs. All legal heirs have to agree about the process to claim the deposit. They will need to submit legal representation, that is, a succession certificate or letter of administration or probate granted by a competent court (which is a time-consuming process), along with the death certificate of the deceased account holder and proof of address and proof of identity of the legal heirs. They also need to submit indemnity bonds to the bank (format is available in the banks) to make good the loss if their claim is found to be invalid or inadequate or there is any adverse ruling by any court later on.
♣ In the case of joint accounts
Joint accounts generally allow a smooth transition of funds to the surviving joint-holder. There are different types of joint accounts and depending on the purpose and situation, they can be effectively used as part of succession planning. Depending on your objective, you can choose the control.
Joint accounts with survivorship clauses such as ‘either-or survivor’, ‘anyone or survivor’, allow unrestrained access to all joint depositors separately. In restricted joint accounts such as ‘former or survivor’, or ‘later or survivor’, the primary account-holder is allowed to operate the account till he/she is alive and others get the access to account only in case of death of the primary account-holder.
A) ‘Either or survivor’ or ‘anyone or survivor’
When the access is open to all depositors, the surviving depositors can freely operate their account but they will have still had to complete the legal process to get the account updated.
In the case of a survivorship mandate, the payment will be made as per the mandate to avoid delays in the production of legal papers by the heirs of the deceased. In the event of the death of the depositor, premature liquidation of the term deposit/s will be allowed. Such premature liquidation will not attract any penal charges. ‘Either or Survivor’ is similar to ‘Anyone or Survivor’, just that there are more than two holders in the latter.
This is the best option since, in case of the death of a first holder or joint-holder, the survivor can claim the deposit easily. Most banks ask surviving holders to submit in writing along with a copy of the death certificate—that the first holder is dead & request to change the holding pattern—so the second holder becomes the first holder and the third holder becomes the second. All terms and conditions (including interest rate, tenure, maturity date) remain the same.
On the death of any of the holders, the survivors have two options: one is to continue the FD till maturity and the second is to take premature redemption by submitting the death certificate and the signed FD.
In the case of the second option, there is no penalty. Depending on the interest rate cycle: one usually picks the first option in case the rates have gone down and the second option if the rates have gone up.
If you are confident of sharing full access with your spouse or your children and trust them completely, then you can choose this mode of operation.