How to name your nominee
BAVADHARINI KS BUSINESS LINE
To avoid family feuds after your lifetime, distribute your investments by way of a nomination. A look at the process for different financial instruments
Joe is a wealthy man, with a large family. He owns investments in various financial instruments and life insurances. He wants all his wealth to go to his family after his death. However, to ensure this happens, he has to validate his wish in writing, declaring the distribution of assets in the form of nomination or will. Else, it is a perfect recipe for family feuds and long-drawn legal battles.
One can easily avoid this situation by properly utilising the nomination facility provided in financial instruments such as shares, mutual funds and insurance. Nomination is a way of protecting the interests of your family and to make sure that they benefit from the investments after your death.
What is nomination? It is an instruction given to the financial service provider — mutual fund houses or insurers — to record the person named as nominee, entitled to receive the investment or the proceeds from it, after the death of the investor. Appointing a nominee makes the process of transmission of benefits simpler. In the absence of one, in addition to establishing the death of the investor, the person making the claim also has to give proof of the relationship and the right to receive the investment proceeds. It is a strenuous process that involves providing documents such as death certificate and legal heir certificate.
Reviewing the nomination from time to time would also help ensure that the intended person gets the benefits of your investments after you. For instance, before marriage, you may have named your father or mother as nominee; after marriage, you might want to reconsider nominating your spouse.
Alternatively, you can leave a will to distribute your wealth to whomsoever you wish. But keep in mind, leaving a will would supersede any nomination provided in instruments such as insurance policies and mutual funds, while the nomination would take precedence in shares and bank deposits.
Here is more about nomination in different financial instruments.
Cover yourself in life insurance
The purpose of life insurance itself is to provide financial support to the family when the bread-winner of the family is not around. Hence, it is important that you name your family member(s) as a nominee in the policy.
Who can be a nominee?
Nominee in insurance is the person to whom the insurer has to make a valid discharge on settlement of claim. In life insurance, the insurer or agent will ask you to nominate, preferably your legal heir (spouse, children or dependent parents), when the policy is purchased.
In the absence of immediate family members, some other blood relation can be nominated. The insurance company will allow this, if satisfied. Non-blood relations are not allowed as nominees.
NRI as nominee is also allowed, but the claim would be settled only to an Indian bank account unless specified otherwise in the policy.
Nominee details such as full name, age and relationship with the policyholder are required to be filled in the form at the time of purchasing the policy. Also, policyholders have the option to register multiple nominees and divide the sum assured. Nominee details can be changed any time during the term of the policy by notifying the insurer by filling the requisite forms. The last update on the nominee details precedes all other previous ones.
Insurance companies should settle the claim within 120 days, if the claim occurs within three years of the policy being issued. But if the claim arises after three years from the policy issuance date, the claim should be settled within 15 days. However, in cases where the insurer requires the claim to be investigated, then the claim should be settled within 30 days from investigation completion date.
Usually, the nominee will be entitled to the claim. However, if you have written your will, the claim will be settled to the person mentioned in your will. Hence, to avoid any confusion, it is best that the nominee and the beneficiary in the will are one and the same person.
Note that if the policyholder has taken a loan against the policy, the insurer would deduct the outstanding loan amount and credit the balance to the nominee. Similarly, if the policy has been assigned or given as collateral for a loan taken from a lender, besides the insurance company, the policy will be re-assigned and fresh nominations have to be made. The insurer would settle the claim to the assignee (person or entity to whom the policy has been finally assigned).
Passing on mutual funds
As per the Securities and Exchange Board of India, mutual funds are required to provide an option to nominate a person who would receive the proceeds from the investment at the time of demise of the investor/unitholder. Though it is not mandatory to provide for nominee, for your own benefit, fund houses insist that you nominate.
Who can be a nominee?
The nomination can be made by individuals applying for/holding units on their own behalf, singly or jointly. An investor in mutual funds can nominate anyone (preferably family members) including a minor as nominee. Even a non-resident Indian (NRI) can be named as nominee, subject to the foreign exchange regulations in force from time to time.
Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot be nominees.
Nomination can be made at the time of filling up the application form for investment or can be made subsequently. An investor has the option to register a maximum of three nominees and can even indicate the percentage of allocation in favour of each of the nominee against their names. If the distribution is not mentioned, the fund house would divide the benefits equally among the nominees.
The nomination form has to be signed by the unit holder and if held jointly, then signatures of all the unitholders are required. Nomination can be changed any number of times by filling up the requisite form. The last update on the nominee details precedes all other existing ones.
Mutual fund nomination is specific to each folio/fund house. That is, you can nominate, say, your father with one mutual fund house and name your mother for investments held in a different fund house.
It usually takes 7-10 days for the money to be credited to the beneficiary’s account.
In the absence of nominations, the legal heir would receive the benefits on death of the investor, but usually this would require the heir to produce long list of documents before the units are transferred. Just like in insurance policies, if the nominee and the person named in the will are different, the fund houses would provide the benefits to the person mentioned in the will.
If anyone other than the legal heir is nominee, he/she shall receive the units only as an agent or trustee. The units are then to be transferred to the legal heir.
Therefore, it is better to name your legal heir as nominee.
Bequeathing equity shares
The Companies Act allows a shareholder to make a nomination for his/her shares held in a company. The Act does not restrict the choice of the persons who may be named as nominee; it is better to nominate your family members if you want them to receive your savings. This makes the transition easier.
Who can be nominee?
Only individuals holding the account (joint account also included) can nominate, and a nominee can only be an individual. Nominee should not be a society, trust, body corporate, partnership firm, Karta of HUF or power of attorney holder. A maximum of up to three nominees can be appointed.
It is not mandatory for the shareholder to provide nomination at the time of investment. Like every financial instruments, nominations in shares can also be altered or cancelled any time.
For shares held in demat form, the nomination has to be recorded by the depository maintaining your demat account. In the form provided by the depository participant, at the time of opening the account, you can provide the details about the nominee — name, photo, age, e-mail ID, relationship to the shareholder, particulars of bank account and address and identity proof.
At the time of investment, the application form (account opening form) has to be signed by two witnesses along with their names and address details. Your depository participant is expected to transfer the benefits to the nominees within seven days from the time of submission of the documents to the depository participant.
To receive the benefits, it is essential that the nominee holds a demat account. In the absence of nomination, the depository or the individual companies would transfer the shares to the legal heir or legal representatives.
However, if nomination is provided, the nominee would receive the benefits. Also, if there is a will and a nomination, only the nominee would receive the benefits. That is, nomination would supersede the will, if the nominee and legal heir are not the same. This is unlike in insurance and mutual funds, where will supersedes nomination.
Nominees for bank deposits
The Reserve Bank of India mandates nomination rules for banks. Banks generally insist that customers provide nomination at the time of opening a bank savings/deposit account. But as a customer, you can still go ahead with the deposits or open an account without mentioning a nominee, provided a letter is given to the banker stating the reasons.
Who can be a nominee?
Nominations can be made by individuals and sole proprietary concerns, but a nomination can only be made in favour of individuals. An associate, trust, society or any other organisation or any office bearer of such institutions, in their official capacity, cannot be a nominee.
The details of the nominee such as name, relationship to the investor or account holder and the address should be filled in the form (account opening application) while opening the account. Once the nominee is provided by the customer, banks are required to incorporate the clause ‘nomination registered’ in the passbook, statement of accounts or deposit receipts. The name of the nominee can also be included in these if you so desire.
You can add and change the nominee with your banker any time. Forms for registration, cancellation and change of the nominations are available at the bank as well on the online portal of the respective banks.
At the time of death of the customer who has given a nomination, the balance in the deposit should be paid to the nominee of the deceased deposit account holder.
The nominee should also provide documentary evidence of the death of the deposit account holder to receive the benefits. Note that, the nominee would receive the payment from the bank as a trustee of the legal heirs of the deceased depositor. The trouble arises when the nominee and legal heirs differ. Banks would follow the nomination mandate and with that their responsibilities end. Legal heirs can stake claim against the nominee only and not against the banks.
Only in the absence of nominee would the bank transfer the benefits to the legal heir.
Banks are expected to settle the claims in respect of the deceased depositors and release payments to the nominee within a period of 15 days from the date of receipt of claim.
Keep in mind
In case of joint account holders in life insurance, mutual funds, shares and bank deposits, the nomination becomes effective only on the death of all the joint holders.
When it comes to nomination, a minor can also be a nominee in the said financial instruments. In such cases, details of the guardian (who should be a blood relative), who would take care of the minor, should also be provided in addition to the minor’s details — name and date of birth.
Therefore, the guardian cannot be the nominee of the same account where the minor is the nominee.
Pay attention to paper work
When you have appointed a nominee for financial instruments — life insurance or mutual funds — documentation becomes easy and simple, after the demise of the investor.
In the case of life insurance, for the nominee to receive the claim settlement, he or she has to submit death certificate (original), original policy document for processing claim and claim form (available with the insurer) duly filled by the nominee. In the case of death by accident, the nominee would also have to submit a copy of police FIR/post-mortem report. Further, KYC procedures should also be complied with.
The documentation requirements remain the same with bank deposits and mutual funds as well. A nominee should provide the death certificate and fulfil the KYC procedure.
For shares, if the nominee is registered, he or she has to submit account closure form (duly filled), transmission request form, original death certificate of deceased (it should be notarised or attested by a gazetted officer if a copy is being submitted) and Client Master Report (of the demat account of the nominee). The depository participant requires that the nominee does not have any joint holder in his/her demat account.
On the other hand, if the deceased has not appointed a nominee, in addition to the usual documentation, the successor claiming the benefits has to produce either succession certificate or letter of administration or probate of the will of the deceased.
If the successor is unable to provide either of the documents, then he/she can submit a no objection certificate from all legal heirs or give an affidavit stating his/her claim, executed on non-judicial stamp paper of the appropriate value and notarised.
In the case of minor being a nominee, the same documentation requirements have to be provided by the guardian.
Published on February 24, 2019