Tool for effective Estate Planning

Nomination is a facility by which an asset owner identifies a person to receive the benefits in the event of his death. A nominee may not be the rightful owner or the legal heir of the assets and may be required to only hold them in trust in the event of the death of the asset holder.

Nomination facilitates and expedites the process of transfer of the assets of the deceased and is critical in wealth distribution. If there is no nomination in investments, the legal heirs will have to undergo a long-drawn process to prove their claim as legal heirs and may have to produce documents like a succession certificate, court order or indemnity bond and the process can be tedious and time-consuming.

A nominee holds the owner’s assets in trust after the latter’s death. If the deceased person leaves behind a will, the proceeds are paid out as per its provisions. If he/she dies intestate, i.e. without a Will, the distribution of assets is governed by the personal law applicable to the deceased.

Nomination is an integral part of one’s estate planning and a very effective tool to enable access to assets by the beneficiaries in case of death. In fact the process of nomination is different across different investments and it is important to understand them properly.

Bank account

Nomination in a bank can be made in case of a Savings account or a Fixed Deposit by the account holder or hirer of a safe deposit locker or the persons availing of safe custody facilities. However nomination can be done in favour of one person only. In case of jointly held and operated locker accounts, nomination in favour of more than one (up to two persons) is allowed. Also, one can have separate nominees for different accounts, FD, savings and RD accounts, held with the same bank. The nominee can also be a non-resident Indian. Nomination can also be cancelled and a nominee can be changed at any time. On death if there is a nominee, the bank will pass on the deposits to the nominee and will be relieved form its liability. But the nominee is only a custodian of the asset and the legal heirs, if different, can claim their share from the nominee.

Life Insurance policy

Any life insurance policy holder is required to select a person or a group of persons who would receive the benefit in case of the policyholder’s death, during the term of the policy. This nominee can be anyone– spouse, children, parents, a distant relative or even a friend. Multiple nominees with their respective shares can be registered at the time of buying the policy. In case a non-family member is nominated, the insured needs to prove insurable interest for such nominee. The nominee in a life insurance policy gets the sum assured and the insurance company will pay the sum assured only to the beneficiary nominee(s) and not to other legal heirs.

Mutual Fund

An investor, called a unit holder, can nominate up to three persons in a single folio and indicate the percentage of allocation for each of them. The nominee details like name, address, relationship and the percentage of allocation etc. have to be filled up at the time of investing. Adding or modifying existing nominees can also be done online or at the investor centre of the AMC. An investor can invest in mutual funds singly, jointly or jointly with Either or Survivor mode of operation. In case of unit holder’s death, who receives the money depends on the mode of operation of the investment. Nomination is captured at a folio level by the fund house. All investments (though different schemes) under the same folio will have the same nomination.

Public Provident Fund (PPF)

PPF is a 15-year deposit account that can be opened with a designated bank or a post office. A person can hold only one PPF account in their name except an account in the name of a minor child to whom he or she is a guardian. PPF allows multiple nominations along with specification of each nominee’s share. No nomination can be made in case of a minor’s account.

Demat Account

A Demat account can hold different types of securities, namely equity shares, bonds, debentures, ETFs (exchange traded funds) among others. The nominee will be the nominee for all of them. Up to three individuals can be nominated in a Demat account. If the account is held jointly, all the joint holders are required to sign the nomination form. Any individual, including an NRI, can be appointed as a nominee. In case of a joint demat account, the second account holder will become the primary holder in case of death. The name of the primary holder can be deleted through a process and if the second holder also dies, the asset goes to the nominee or legal heir in the absence of a nominee. in a demat account the Companies Act overrules even a Will. So in a Demat account, the nominee will inherit the shares.

Property

The succession of any property goes as per the Will or succession law if the Will is not present. The concept of nomination is not there in general. But in a co-operative housing society you are the owner of unit of a share in the society in the form of a flat. Due to this type of ownership, you have to appoint a nominee in co-operative housing societies. Even here the appointed nominee is only a custodian and the actual ownership of the flat will go to legal heirs.

To sum it up, though appointing a nominee helps the legal heirs in avoiding the lengthy legal procedures but an inheritance plan can be more efficient if the estate owner writes a Will and appoints nominees in the financial assets as per the Will. This will ensure timely and efficient transfer of assets to the actual legal heir and as per the wishes of the estate owner.