Will your Nominee get the money on your death?- Legality-Very Important

Will your Nominee get the money on your death?- Legality-Very Important Mail

Will your Nominee get the money on your death?

 

Did you think that your nominee is the person, who will get all the money

legally from your Life Insurance Policy and Mutual funds investments? Ha!

That is exactly what you’d think if you aren’t aware of the legal aspects.

We assume a lot of things which sounds like they’re obvious, but are not

true from the legal point of view. Today, we’ll concentrate on nominations

in financial products.

For whom are we earning? For whom are we investing? Who, do we want

to leave all our wealth to, in case something happens to us? It might be

your children, your spouse, parents, siblings etc., or just a subset of these.

You also might want to exclude some people from your list fo

beneficiaries!. So you think you will nominate person X in your Insurance

policy, and when you are dead and gone, all the money goes to person

X and he/she becomes the sole owner? You’re wrong, dude ! It doesn’t

work that way. Let’s see how it actually does!

What is a nominee?

According to law, a nominee is a trustee not the owner of the assets. In

other words, he is only a caretaker of your assets. The nominee will only

hold your money/asset as a trustee and will be legally bound to transfer it

to the legal heirs. For most investments, a legal heir is entitled to the

deceased’s assets. For instance, Section 39 of the Insurance Act says the

appointed nominee will be paid, though he may not be the legal heir. The

nominee, in turn, is supposed to hold the proceeds in trust and the legal

heir can claim the money.

A legal heir will be the one whose is mentioned in the will. However, if a

will is not made, then the legal heirs of the assets are decided according

to the succession laws, where the structure is predefined on who gets how

much. For example, if a man during his lifetime executes a will. In the will,

he mentions his wife and children as legal heirs, then after his death, his

wife and children are the legal owners of his assets. It is essential that one

needs to execute a will. It is the ultimate source of truth and replaces the

succession law. Nominee can also be one of the legal heirs.

Important— Mention the Full Name, Address, age, relationship to yourself

of the nominee. Do not write the nomination in favour of “wife” and

“children” as a class. Give their specific names and particulars existing at

that moment. If the nominee is a minor, appoint a person who is a major

as an appointee giving his full name, age, address and relationship to the

nominee.

Why is the concept of nominee?

So you might be wondering, if the nominee does not become the sole

owner, why does such a concept of “nominee” exist at all? It’s pretty

simple. When you die, you want to make sure that the Insurance

company, Mutual fund or your shares should at least get out of the

companies and go to someone you trust, and who can further help, in

process of passing it to your legal heirs.

Otherwise, if a person dies and hasn’t nominated anyone, your legal heirs

will have to go through the process of producing all kind of certificates like

death certificates, proof of relation etc., not to mention that the whole

process is really cumbersome! (For each legal entity! The insurance

company, the mutual funds, for the shares, for the real estate..) . So, to

simplify, if a nominee exists, these hassles don’t happen, since the

company is bound to transfer all your money or assets to the nominee.The

company the goes out of scene & then, it’s between nominee and legal

heirs.

Example of Nomination

Ajay was 58 years old who died recently in an accident. As his children

were settled, he wanted to make sure that his wife is the sole owner of all

the monetary assets. This includes his insurance policy and mutual funds.

So during his lifetime, he nominated his wife as a nominee in his term

insurance policy and mutual funds investments. However, after Ajay’s

death things didn’t turn up the way he wanted. The reason being Ajay did

not leave a will. Though his wife was the nominee in all his movable assets,

as per the law, his wife, along with children, were the legal heirs and all of

them had equal right to Ajay’s assets.

One simple step which could have saved the situation was that Ajay

should have made a will which clearly stated that only his wife was

entitled to get all the money and not his children.

IMPLICATIONS OF NOMINATION ARE DIFFERENT FOR EACH CATEGORY !!

Nomination in Life Insurance

A policyholder can appoint multiple nominees and can also specify their

shares in the policy proceeds. Nomination in life insurance has one

limitation, as insurance policies are bought to secure your financial

dependents, your first choice of nominee has to be your family members.

In case you want to nominate a non-family member like a friend or third

party, you will have to show/PROVE the insurance company that there is

some insurable interest for the person. This happens because of a Clause

called PRINCIPAL OF INSURABLE INTEREST in insurance. Note that provision

of nomination in life insurance is related to Section 39 of the Insurance

Act. Note that as per LIC website

Nomination is a right conferred on the holder of a Policy of Life Assurance

on his own life to appoint a person/s to receive policy moneys in the event

of the policy becoming a claim by the assured’s death. The Nominee

does not get any other benefit except to receive the policy moneys on

the death of the Life Assured. A nomination may be changed or

cancelled by the life assured whenever he likes without the consent of the

Nominee.

Make sure, you have a nominee for your policy for easy settlement of the

claim, if you do not have any nominee mentioned in the policy, it can turn

out to be a disaster for your dependents to get a claim.

Nomination in Mutual funds

In case of mutual funds, you can nominate up to three people, who can

be registered at the time of purchasing the units. While filling in the

application form, there is a provision to fill in the nomination details. Even

a minor can be a nominee, provided the guardian is specified in the

nomination form. You can also change nomination later by filling up a

form which is available on the mutual fund company website. Nomination

in mutual funds is at folio level and all units in the folio will be transferred to

the nominee(s). If an investor makes a further investment in the same folio,

the nomination is applicable to the new units also. A non-resident Indian

can be a nominee, subject to the exchange control regulations in force

from time to time.

Nomination in Shares

Quiz for you . Now you know what a nominee means and who actually

gets the money. So if there is a husband H, with wife W and nephew N,

and he has nominated his nephew N to be the nominee of his shares in

demat account, who will have the legal right to own the shares after

husband’s death? If you answer is wife, you are wrong in this case! In case

of stocks, it does not work the usual way, if a will does not exist.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha

Nitin Kokate, who was seeking permission to sell some shares held by her

late husband. The Court noted that as she was not the nominee, she had

no ownership rights over the shares. Ms Kokate’s lawyer had argued that

as she was the heir of her husband who had died intestate (without a will),

she should have ownership rights of the shares, and be able to do

anything with them as she wished. In this case, Ms Kokate’s husband had

nominated his nephew in favour of the shares. Justice Dalvi however

noted that under the provisions of the Companies Act and the

Depositories Act, Acts which govern the transfer of shares, the role of a

nominee was different.“A reading of Section 109(A) of the Companies Act

and 9.11 of the Depositories Act makes it abundantly clear that the intent

of the nomination is to vest the property in the shares which includes the

ownership rights thereunder in the nominee upon nomination validly

made as per the procedure prescribed, as has been done in this case.”

It means that if you have not written a will, anyone who has been

nominated by you for your shares will be the ultimate owner of those

stocks, The succession laws on inheritance will not be applicable but in

case, you have made a will, that will be the source of truth.

Nomination in PPF

Let me give you some shock first. If you have Rs 10 lakh in your public

provident fund (PPF) account and you have not nominated anyone for

your PPF account, your legal heirs will get maximum of Rs1 lakh only! Yes,

it’s so important to have a nominee, now you get it. You can nominate

one or more persons as nominee in PPF. Form F can be used to change or

cancel a nomination for PPF. Also note that you cannot nominate anyone

if you open an account for a minor.

Nomination in Saving/Current/FD/RD Account in Banks

FD’s also come with nomination facility. While opening a new account,

there is a column for nomination in the same form and you should fill it.

You can nominate two persons with first and second option. Note that in

case you have not done any nomination till now, you should request Form

No DA-1 from your Bank which is used to assign a nominee in future.

(Examples of ICICI Bank , HDFC Bank , Canara Bank) . In the same way to

change/cancel the nomination you need to fill up Form no DA-2. Read

about Corporate Fixed Deposits

As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in

an order said that the money lying deposited in the account of the

original depositor should be distributed among the claimants in

accordance with the Succession Act of the respective community and

the nominee cannot claim any absolute right over it.

Section 45ZA(2)(Banking Regulation Act) merely put the nominee in the

shoes of the depositor after his death and clothes him with the exclusive

right to receive the money lying in the account. It gives him all the rights of

the depositors so far as the depositors’s account is concerned. But it by no

stretch of imagination make the nominee the owner of the money lying.

MAKE A WILL! DO YOUR NEXT KIN A HUGE FAVOUR !

MAKE SURE YOU UNDERSTAND THE IMPLICATIONS OF LAWS.