LEGAL ISSUES -WILL YOUR NOMINEE GET THE MONEY ON YOUR DEATH -- HE/SHE WILL NOT MOST PROBABLY
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 2qw 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 policy holder 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
there under 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 BY NOT LEAVING THEM IN LEARCH!
MAKE SURE YOU
UNDERSTAND THE IMPLICATIONS OF LAWS
INFORM EVERY ONE WHOM YOU FEEL MUST TAKE ACTION NOW.
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