Rate hikes will strengthen growth prospects

I am text block. Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

If you thought that your nominee will get all your assets and money easily and legally after you have left this world, then think again.

Synopsis

• If you thought that your nominee will get all your assets and money easily and legally after you have left this world, then think again.
• If you thought that your nominee will get all your assets and money easily and legally after you have left this world, then think again. The rule of the land does not let this happen that way in each and every case. Simply because in the eyes of the law, a nominee is only a custodian and not the owner of your assets, and is legally bound to transfer the assets to the legal heirs.
• Jitendra P.S. Solanki, a SEBI-registered investment adviser and founder of JS Financial Advisors, says, “How efficiently your assets are distributed among your family members rests on how well you have planned for it. A general perception is that by making a nomination you have secured the passing of the asset to the nominee. But the rules are different in some of the assets and many a times we even don’t remember about the nomination we have done.”
• The more disturbing is when you actually forget to make a nominee. In such a case, a Will has to be there. But if the Will is also not present, then the process for your family to claim these assets can be quite lengthy. The institution will demand hosts of documents, one of them being a succession certificate, which takes a good enough time to obtain. Till that time the family is deprived of the asset.

Just to make sure that your loved ones don’t face such legal hassles, it’s important that you understand the role of nomination. Thankfully, there have been many instrumental decisions by various courts in the past, which may help you understand the role of nomination. Here we take a look at some of them:

1. Bank Accounts: A bank account is the first financial tool which each one of us get exposed to. Usually we make nominations in bank accounts, but fail to get it updated with the changes in our life. For example, “most people make their parents their nominee when they are single, but do not get it updated post marriage. 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,” informs Solanki.

In an important verdict, in the case of a nominee seeking rights to the assets of his uncle’s bank account, the Gujarat High Court stated that “the nominee to a bank account does not have the rights of a legal heir of the original account holder. Hence, he cannot claim money or deposits lying with the bank on the death of the original account holder.”

In case of joint accounts, the second account holder operates the account and post his/her death, the nominee gets the deposit amount.

2. Life Insurance: The story is not very different here. A nominee in a life insurance policy acts only as a trustee of the proceeds. Section 39 of the Insurance Act, 1939, states that the insurance company must hand over the amount to the nominee mentioned in the policy. In the 1983 case of Sarbati Devi vs Usha Devi, Honorable Supreme Court has also ruled that “in case of insurance policies, the nominee does not inherit the amount and receives it only as a trustee of legal heirs.”

Once the insurance company passes on the proceeds to the nominee, then it’s him or her who has to distribute it to the legal heirs as per the Will, if it’s there, else the succession law comes into play.

3. Mutual Funds: Here too the nominee is just a custodian of the investments. On death, the mutual fund proceeds are given to the nominee, who in turn has to distribute it to the legal heirs, if different. In case of joint account holdings, if a joint holder other than the first holder dies, then the units remain in the name of the first holder and he/she has a right to register any other person as a joint holder. But rules are different in case of a demat account

“Interactions with AMCs have revealed that in such cases, the nomination in a demat account superimposes the nomination in mutual funds. But AMCs in general do not scrap the nomination as you always have an option to rematerialize the mutual fund units, i.e. transferring them back to physical units. Then the nomination in your MF scheme will be effective. 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,” says Solanki.

4. Shares: The rules have been changed here by an Honorable Supreme court ruling in 2012. In a case of wife claiming the shares lying in a demat account where a nephew was a nominee, the Supreme Court ruled that “the wife had no right over the shares as the provisions of the Companies Act mandated that the nominee inherit them.” This simply means that in a demat account the Companies Act overrules even a Will. So in all your demat accounts, the nominee will inherit the shares. If you have joint accounts, then the second holder will be the sole owner of the shares and post his/her death, the nominee/legal heir will inherit the shares.

• 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,” observes Solanki.
• The succession was clarified by the Bombay High Court in a case of 2009, which dragged almost for 29 years. The high court judgment has ruled that “mere nomination to the co-operative housing society does not give the nominee exclusive rights of ownership to the flat – and neither are the rights of other legal heirs lost by such nomination. So on demise of the owner of the flat, it is the legal heir and not the nominee who bequeath it.”

Appoint a Nominee

All said and done, however, even though succession may have a different say in various financial assets, nomination has a very important relevance in your estate planning. Appointing a nominee helps your family in avoiding the lengthy legal procedures. However, your estate planning can be more efficient if you write a Will and appoint nominees in your financial assets as per the Will. This will ensure the layer of transfer of assets to the actual legal heir, which you wish, is reduced.