Death in a family is an unsurmountable loss to family members and it takes a lot of time to come to terms with it. We have observed that accessing fixed deposits (FD) of the deceased person often becomes a long drawn, stressful process for legal heirs even as they grapple with their grief. Many families are waking up to this unfortunate reality as the COVID-19 second wave continues to leave a trail of death across the country.
People are realising how imperative it is to effect a smooth transition of assets. While FDs are a good instrument for senior citizens to park their funds, earn regular interest and to plan succession, it is also important to pay attention to details such as holding pattern of the FD and operational survivorship clauses.
A joint FD with your loved ones can be a possible solution to many such FD transition issues.
1) 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.
A) In case there is 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 longer time to get completed.
A few points to remember. Nominee is the contact person in case the depositor dies before maturity. If the nominee and the legal heir are not 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 maturity of the FD.
B) In case there is no nomination:
In case the bank account does not have any nominee, the process will take 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 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, 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 bond 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.
2) In case of joint accounts
Joint accounts generally allow 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 have to complete the legal process to get the account updated. In case of survivorship mandate, the payment will be made as per the mandate to avoid delays in 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 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 copy of death certificate—that the first holder is dead & request to change the holding pattern—so the second holder becomes first holder and third holder becomes second. All terms and conditions (including interest rate, tenure, maturity date) remain same.
On the death of any of the holders, the survivors have two options: one is to continue the FD till maturity and second is to take premature redemption by submitting the death certificate and the signed FD. In case of 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.
B) 'Former or survivor' and 'later or survivor'
The restricted survivorship clause in the joint account comes in the form of 'former or survivor' and 'later or survivor'. In case of joint accounts where one of depositors dies and has opted for the survivorship clause, payment of the balance in the joint account to survivor shall be considered as valid discharge of the liability of the bank subject to identify the survivor being established, valid proof of death of account-holder is produced and also provided that a competent court has not issued a restraining order to the bank for not making the payment to the survivor from the joint account. Hence the process in case of joint account helps in smoother and timely access to funds as compared with solo account.
If you wish to retain full control over your FDs, you should keep it in 'former or survivor' mode. It will help in a seamless transition of your FD money as it ensures you have full control on the funds until you are alive and once you are not around, ownership of the FD is passed on to your joint account-holder without much difficulty.
But if the mode of operation is marked as jointly, then two or more depositors (together) have to authorise to access the funds. In this mode of operation, the holding will be joint. All joint-holders’ signatures would be required to claim the deposit at maturity. In the event of a death of any one holder, the surviving holder may claim the rights over deposit by submitting proper documents. In a case of death of both holders, the money is payable to the nominee mentioned at the time of opening of the FD.
It might be a better option for senior citizens to keep FD money in the joint FD for easier transition. The biggest advantage is that it provides access to money to all the joint-holders whenever they need it. In case of death of one account-holder, the other account-holder can get easier access to the funds if they have opted for the survivorship clause.