What happens to your assets in a bank when you die?
Excluding money or credit balances in what are called “current” or “cheque accounts”, many customers of banks have funds in savings accounts and fixed deposits.
They also can have Treasury Bills or Treasury Bonds. These are interest bearing financial instruments that banks obtain for their customers from the Central Bank. Some customers also have deposited valuables with their bank for safe custody in safe deposit lockers or boxes.
Life is impermanent and death is certain. So the question posed in this article is, what happens when you die to your money and other assets with your bank (other than the monies in the current account)?
Generally speaking, any such assets will go to your “heirs”. Heirs are those who inherit from you on your death. This will normally be your spouse and children and in the absence of a spouse or children, the other members of your family, such as your brothers and sisters, etc.
If you leave a Will or Testament, the “heirs” will be those named in your “Will”. They are called “beneficiaries” (i.e. those who are “to benefit”). When you die leaving a “Will,” it is commonly said that you have died “testate”. When you die without a will, it is said that you died “intestate”.
Sometimes (fortunately not often), a dispute can arise as to who are the heirs and who should inherit. In such case, the bank in order to safeguard itself, will require any claimant or claimants to obtain an order of a court of law as to whom such money or assets (valuables in safe custody) left with the bank should be paid.
Testamentary Proceedings, Probate or Letters of Administration
Under normal law, when a person dies leaving assets (movables and immovables) of more than Rs. 500,000, the heirs or the Executor of the deceased (if there was a Will) has to file a Testamentary Case in the District Court of the area where the deceased died annexing the Last Will and obtain what is called “Probate”.
If there was no Last Will, then what you obtain are “Letters of Administration”. Both are official documents (Judgments/Decrees) signifying that the court recognises the estate of the deceased and how it should be dealt with.
Banks and other financial Institutions are very strict in asking for the Probate or Letters of Administration before they deal with or part with funds or assets of the deceased customer. If they do not do so, they may be liable to anyone who later claims those funds or assets as belonging to him or her.
On the other hand, Probate or Letters of Administration being Orders/Judgments of a Court of Law, it is safe to act on them and a bank cannot be found fault with if they acted on such judicial orders.
Supreme Court decisions on the subject
Litigation caused problems for banks
Several reported judgments of our Supreme Court show the problems faced by banks in dealing with funds and assets of deceased customers; See: Imperial Bank of India Ltd. v Perera (1928) 30 New Law Reports p 59; Bank of Ceylon v Upali Dias (1982) 2 Sri Lanka Reports p 73 and Silva v Mercantile Bank of India Ltd. (1920) 2 Ceylon Law Recorder P 157.
The above decisions created a certain confusion among banks as to how they should act when a customer died leaving funds with the bank. Last Wills and Probate and Letters of Administration also caused problems because of the long delays in the court system. It was to overcome these practical problems that “Nominations” were introduced. Now we discuss the topic of “Nominations”.
Nominations to assets in banks and financial institutions
While most bank staff know about “Nominations,” there are many customers who do not understand or appreciate the significance of a “nomination” although they may have signed or given a written authorisation of a nomination. A copy of the nomination is not normally given to you as the customer.
What is a Nomination? It is entirely a legal term with legal implications. It was introduced in the early 1990s to facilitate the operations of banks and other financial institutions like finance companies that advertise fixed deposits and also companies in which one invests in shares and even insurance companies when you invest with life policies.
“Nominations” recognised by Section 544 Civil Procedure Code
Nominations were introduced by section 544 of the Civil Procedure (Amendment) Act No 14 of 1993. Under that provision any person over sixteen years of age can nominate another person to be entitled to receive the following assets he or she may have.
All monies and funds in your bank other than money in a current or cheque account. Monies covered by a nomination are monies in fixed deposits, treasury bills, treasury bonds, savings account money and articles and items lodged for safe custody in a bank.
Any shares in a company
Any life insurance policies
Any Money in deposit in any registered finance company.
With effect from February 2005, there was another amendment to “Nomination Law” (as some now call it) by the Civil Procedure Code (Amendment) Act No 4 of 2005 whereby Section 544 (1) was extended to cover any instrument relating to any monetary interest (other than a bearer instrument or a negotiable instrument) issued by a company or a body of persons legally established. Both “instrument” and “bearer instrument” were also defined in that same amendment.
Accordingly, the “nominated” person, now called the “Nominee” shall be entitled to claim and be transferred or paid all the above mentioned assets of the “Nominator” on the death of the “Nominator”.
Such Nomination overrides a Last Will of the Nominator
What is important and most significant to note is that such a “Nomination” overrides any provision made in the Last Will of the Nominator.
As an illustration, let us say you are a customer of a bank and you have all your movable assets at the bank. You have several current or cheque accounts. You also have several large fixed deposits, Treasury bonds, a savings account with considerable funds and even valuables in your safe deposit locker with the bank.
Your wife is dead and your “heirs” are your three sons. Your youngest son is an accountant who helps you with your banking transactions and often you go to the bank with him. At your bank’s suggestion, you have signed a “Nomination Form,” nominating this youngest son.
After a few years, you die leaving a Last Will. In your Last Will you have stated that all your assets held with your bank will be divided equally between your three sons. Despite this, your youngest son whom you had “nominated” had, on your death, taken for himself all the assets you had at the bank other than the monies which were in your current account at the time of your demise.
He had pulled out and taken all the monies you had in your savings account, your fixed deposits and valuables you had in your safe deposit locker. Could he have done this because your Last Will says all your assets should be divided equally between your three children? The clear answer is “Yes”.
He could have done so because the “Nomination” overrides the Last Will. The Bank also cannot be found fault with for releasing these Assets to him because the same statutory provision we discussed above (Section 544 (5) of the Civil Procedure Code) states that a bank is entitled to hand over those assets to the person who was the “Nominee”. To quote, Section 544 (2) of the Civil Procedure Code states:-
A nomination so made shall have effect upon the death of the nominator notwithstanding anything in his last will to the contrary.
Section 544 (5) states: The handing over, or transferring of, any money, share certificate or deposit certificate or other movable property to any nominee of a nominator who has died, shall be a complete discharge of the obligations of the bank or institution, in respect of the money, or other movable property, lying to the credit of, or in the name of, such nominator, or under such insurance policy.
Non-liability of bank or other specified institution for dealing with “Nominee”
The above statutory provision clearly safeguards all banks and institutions such as companies, finance companies and insurance companies for recognising and dealing with the “Nominee” as the person entitled to the Assets of the deceased Nominator.
In other words, if an person claiming to be an “heir” of a deceased customer of the bank sues the bank for having paid out to a “nominee” any monies of the deceased customer (other than funds in a current account), the bank can set up Section 544 (5) of the Civil Procedure Code as a complete defence. All that the bank need prove is the “Nomination” and that the “Nominee” was properly identified before dealing with him.
A Nomination may be revoked by the Nominator or by the Nominee’s Death
It is important to note that Section 544 (3) of the Civil Procedure Code (CPC) states that: Any nomination made under subsection (1) shall be deemed to be revoked by the death of the nominee in the lifetime of the nominator or by written notice of revocation signed by the nominator in the presence of a witness who shall attest the signature of the nominator or by any subsequent nomination made by the nominator.
Steps to be taken where there is a Nomination
In view of the above provisions relating to “Nominations”, in the event of the death of a Customer (Nominator), banks and finance companies will freeze his assets and immediately ascertain whether the “deceased customer” had signed a “Nomination” and appointed a “Nominee”.
If so, none of those assets (other than funds in a current account of a bank) will be paid out without the written orders or consent of such “nominee”. Similarly, when a life policy, or a share in a company has been assigned by a “Nomination”, no action will be taken without the orders or consent of the “Nominee”.
If a bank or any of the other institutions referred to above, deal with the assets of the deceased customer (Nominator) without the consent or orders of the Nominee, such bank or institution will be liable to the “Nominee”.
Significant issues relating to “Nominations”
Firstly, the main problem with “Nominations” is that most customers, that is, the persons entitled to “Nominate” are not aware of the statutory provisions applicable. This may be due to the fact that the provisions are found in the Civil Procedure Code and not in a statute or legislation dealing or referring to banks or banking like the Banking Act.
Regrettably, there are also lawyers, bankers and financial advisors (thankfully not many) who are ignorant of these provisions in the Civil Procedure Code on “Nominations”.
Secondly, as the Bank of Ceylon Nomination referred to above shows, in a joint account if one of the account holders dies, the nomination automatically becomes invalid. Then the remaining account holder can if he or she wishes make a new nomination.
Thirdly, normally, customers do not insist or ask for the right to nominate. Nomination is always suggested or advised to customers by the staff of the bank. However, often the bank staff do not explain to or apprise the customer of the consequences of such nomination. For instance, the severe legal effect of nomination that it even overrides a Last Will as shown above. If properly advised, customers may not make a Nomination.
Fourthly, many customers forget that they made a Nomination because copies of forms signed at the bank are not given to them. I know of a case where a customer nominated his wife. He later divorced and remarried. Two years later, he died leaving his wife as his only heir. He had however, forgotten to cancel the earlier nomination of his former wife who successfully claimed the money in his fixed deposit at this bank.
No reported case-law on “Nominations”
Although the above law relating to “Nominations” came into effect in mid 1993, there are no reported judicial decisions on the subject. I am aware that there has been litigation where Executors of Last Wills of deceased customers have contested the “Nomination” in Court but have not succeeded against the “Nominee”. These cases are unreported.
However, in one recent case, covering the last will of a well-known lawyer (about which I am aware), it was argued that such nomination under Section 544 of the CPC only protects the banks and institutions referred to and only they will not be liable and will be fully protected if they pay or give the assets to the nominee.
The argument was that the provisions of a last will be binding on such nominee and he or she will have to account to the executor of the last will for any monies or assets covered by such nomination. This argument was however rejected by the District Court and the appeal to the Court of Appeal was also not successful. In other words the nomination overrides even a last will. The case reference is DC Colombo 34517/Testamentary and Court of Appeal Revision No. 882/2001.
The above explanation of the law governing “Nominations” shows that unless you clearly appreciate the effect of the “Nomination,” it is best not to make a “Nomination”. Bank staff should also explain to customers the consequences of a “Nomination” when they suggest it to their customers.
(The writer is the Insurance Ombudsman of Sri Lanka.)