What is a nominee ?....will he / she get your money after ....

JagoInvestor manish@jagoinvestor.com via aweber.com	5:10 PM (42 minutes ago)

 

So we heard from everyone that nominee gets the money from your Insurance policy or Mutual funds or Fixed Deposits, and we happily believed it . Can you afford to beleive that this is WRONG ! . 

 

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, well concentrate on nominations in financial products, Insurance policy, and when you are dead and gone, all the money goes to person X and he/she becomes the sole owner? You are wrong, dude ! It doesn't work that way. Lets see how it actually does!

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

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 deceasedâ€^(TM)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? Itâ€^(TM)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 hasnâ€^(TM)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, itâ€^(TM)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 Ajayâ€^(TM)s death things didnâ€^(TM)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 Ajayâ€^(TM)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.

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 assuredâ€^(TM)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 husbandâ€^(TM)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 KokaTheâ€^(TM)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 Kokateâ€^(TM)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.

â€oeA 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.â€

Source : Moneylife

 

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, itâ€^(TM)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 in the account," the Bench observed.

 

Conclusion

Now you know! Taking Personal finance for granted can be fatal :) Just investing knowledge, isnâ€^(TM)t enough to have a great financial life. You also need to be well versed with basic legal aspects and make sure you carry out all due arrangement . Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future. Mistakes in Personal Finance Its important to make sure that your loved one's do not face legal issues and only say and think lovely thoughts about you when you are not around, rather than crib & grumble :)

 

So this was the last Email of the 3 part series , Now you can explore the content on the blog . Read  archives section to find out more articles of your interest .

 

Manish 

www.jagoinvestor.com 

Claiming Assets after Death? 4 Important documents you need.......must read

Claiming Assets after Death? Here are 4 Important documents you need to know about!

by Manish Chauhan

Are you sure that when you inherit your parents assets or any other bank accounts later in life, its going to be a smooth process? Will it be hassle free and without any complexities? Are you sure you will not get dragged into life long legal battles with siblings or any other relatives who will fight for the same assets and properties ? Have your parents taken care of all the succession planning like nominating you for those assets and writing a WILL and registering it with help of a lawyer ?

On an average, almost all the families are very weak in their estate planning. They are so much engrossed into their “current” life, that they are not bothered about future much. Its their children and legal heirs who have to suffer later, due to their laziness or ignorance about these matters. In this article I want to highlight few important documents and processes which you should be aware about, so that when the time comes – you are familiar with them.

After the death of the owner of assets ?

After the death of asset holder, after few weeks/months – its time to claim their assets and properties. That time, there are lots of paperwork and procedure to be followed. You have to claim their

•  Fixed deposits
•  Saving bank accounts
•  Bank lockers
•  PPF (Public Provided Funds)
•  EPF (Employee Provided fund)
•  Post Office Deposits
•  Mutual Funds
•  Stocks and Shares
•  Life Insurance Policies
•  NSC
•  Real Estate Property
•  Bonds (If any)

Can you see how long is the List ?

You will have to run around to claim all of these one by one and might also have to do few rounds because of the process and procedures to be followed. Now this verification and processes is very critical for the banks, mutual funds houses, or companies to make sure that the asset is passed to the right hand, who ever is entitled to get it legally and not just anyone making the claim.

Just saying that “I was his Brother” or “I was his wife” will not help much because its not so straight forward process, especially if things dont match on nomination or the WILL. And if the nomination is blank or not on the right person name (who is wanting to file a claim) or worst if WILL is not written at all, then its the start of that frustrating phase, which is about to come. In your world, you might be very clear, who are legal heirs and who deserves the assets, but that’s not the point here. You need proof and all the legal documents and process in place to claim the assets.

So there will be documents asked, forms to be filled and rounds to be made to court to obtain some documents – even if it means frustration and disappointment for the family member of deceased. So you can now get a sense of how important is succession planning, and if one is careful and responsible enough, they will at least do basic things in place like  putting nominations in place and writing and registering a WILL in a standard manner with help from a lawyer.

Some mistakes which most of the investors make 

Let me first list down few mistakes or incomplete things done by investors which create the problems in future. These mistakes happen due to sheer ignorance or because of casual attitude of investors. You or your parents might be doing these following mistakes.

•  They do not mention anyone in Nomination when they open a bank account, open a fixed deposit etc
•  Once they put a nominee, they do not bother to change it ever, even if nominee has died or is now not on their preferred list
•  They do not keep receipts or save important documents
•  They do not write a WILL
•  They write a WILL, but do not register it
•  They write and register a WILL, but do not inform anyone in family
•  They do not consult a lawyer while write a WILL and make mistakes in it
•  They do not do proper paperwork when they execute a buy/sale transaction (Here is areal life experience)
•  They rely too much on words of others and have feel “legal battles” happen only in movies

Can you relate to any of these above ?

Are you doing something similar in your financial life. It answer is “YES”, your family or you yourself might face lot of issues in future as explained above. You seem to be too much busy in earning money or just making investment – without realising that one day it might not even go to someone important in your family or reach very later after a lot of work to be done.

4 Important Documents required to Claim an Asset after death

Lets finally come to the main point and now I will just explain to you some documents which generally come into picture at the time of claiming assets. Here they are -

1. Death Certificate

The first thing in the list is Death Certificate. Its one of those documents which will surely be required no matter what. Death certificate is a document which officially certifies that a person is dead . Death certificate also records the date and time of death, which can be a crucial information for things like life insurance claim.

Anyways, as per Registration of Births Deaths Act, 1969, its mandatory to register death within 21 days of its occurrence and if you are late, then again you will have to do more paperwork and pay some charges. Death Certificate is issued by Municipal Corporation (Urban areas) or Gram Panchayat (in case of rural areas) after proper verification is completed by them.

Death certificate is required by all the institutions (Banks/Fund Houses/Insurance Companies) irrespective of presence of WILL or nominations. So make sure you take death certificate immediately after the demise of the concerned person. Depending on the nature of death, the process of obtaining death certificate changes. If its death at home due to some illness or high age, there not much is required, but if its a death by accident or murder etc, a copy of FIR might also be required.

So make sure you get this document after the death, it might take some good amount of time and running around , so start the process sooner you can.

TIP – You can find state wise procedure and which department to contact on this website. Visit the website and you will see a dropdown at the end of the page.

2. Claim Application Form

Claim form is the form which needs to be filled by you at the time of making the claim. Depending on the asset type, the organisation will provide you. Each bank has its own claim application form, Post Office has its own and mutual funds companies have their own forms. You have to fill in details like – relationship with the deceased and your identity details along with proofs and more.

You also have to give your bank details or other KYC details if the assets has to be transferred to your account like in case of shares in demat account or mutual funds portfolio. Just to give you a feeling of how it looks like  below is a sample claim application form for saving bank account from SBI Bank.

3. Probate of WILL 

One of the most common problems in India is unregistered WILL. Lots of people write a WILLwithout consulting a lawyer, and do not feel the need to register it. Just because its not registered in the registrar’s office, its bound to raise questions on its authenticity. Lots of times in families, someone claims that there was a WILL written in their favour and then the other parties challenge it saying that its fake. Sometimes two parties come up with their own version of WILL claiming that the other one is fake!.

This all happens because the WILL was not registered. In which case, a “Probate of WILL” is required from Court.

Probate is a way to certify that the WILL is authentic. So if you have to claim an asset and the WILL you have raises questions, you might be asked to get Probate from court to prove that the WILL is authentic.In that case you will have to reach to court, catch a lawyer and apply for Probate. There will be fees to be paid and lots of time might go in this process. Probate will have court seal on it and also the WILL copy will be attached to it.

Below is one comment which I had got long back on a issue which involved fake WILL. You might be able to see the role of Probate here.

My father in law has died without WILL, he left wife, 2 sons and 1 daughter. Both son prepared ZABARDASTI WILL of my mother in law , stating that both sons will get 40 % each sister will get 20%. This flat is owned by father in law. Can widow’s (mother in laws) WILL will be considered after her death ? Now daughter wants equal share in her fathers property. Is this property is earned or ancestral for mother in law, can daughter give challenge for equal share after her mothers death, or this REGISTERED WILL prepared by mothers will be considered by cour ? plz advice in brief

You can see that the above WILL can be challenged and in that case, a Probate would be asked for to prove that the WILL is authentic or not.

4. Succession Certificate

Succession Certificate comes into picture when there is no written WILL, absense of nomination, or when your name is not on nominee list, but you want to claim the asset because you are legal heir (you know about it, but there is no legal document saying that). At that time, you will have to bring succession certificate from court, which is a proof that you are a valid legal heir. Note that just saying that you are legal heir and bringing some relationship proof will not work here, you have to actually follow the process and get succession certificate to prove that you are a legal heir as per the succession laws.

Once you get succession certificate,  you will be then seen as a valid legal heir and then the assets will be transferred in your name. At times when there is no nomination in place or more than one person comes into picture claiming for assets, then also succession certificate is demanded and the assets are passed on as per that document. Note that only one succession certificate per asset is issued and if there are more than on person claiming the assets, their names will be mentioned in that succession certificate, so its better to support each other and not fight with each other, otherwise situation will get tougher for you.

To get succession certificate, you can reach to district or high court of the jurisdiction, under which the assets fall (bank or property location) . You have to take help of a lawyer and file a petition for obtaining succession certificate and give details like your relationship with the deceased, you date of birth, your other details asked.

Then court will put a notice in newspapers inviting any objections for next few weeks, and if there are no objection, then you are granted the succession certificate. This can take time, money and some rounds to court along with anxiety especially when there is someone else who claims to be the legal heir and you do not have good terms with the other party  .

So this was all for now.

References –  http://www.bemoneyaware.com/blog/paperwork_documents/

Conclusions

The more work you do on your succession planning part. The lower will be the headache and frustration for your family members later when you leave this world as a surprise. The minimum you can do is fix your nominations for all the assets like bank accounts, life insurance policies, mutual funds, demat account, PPF / EPF and real estate etc. Sir, it takes 1 day! of your life or some hours only. Apart from that, you should write a WILL and get it registered too with help of a good lawyer, spend on it  .