It is not compulsory, but it is highly advisable to appoint a nominee for each of your investments like bank account, fixed deposit, demat account, Post office investments, insurance policy or your property, to take care of your assets in the event of your death.
In case of joint accounts, the nominee’s right arises only after the death of all the depositors. The nominee has no right over the assets, and is legally bound to transfer it to the legal heirs (one of whom can be a nominee).
A nominee is generally a family member whom you trust. Nomination can be done for an existing account too. Non-individuals including society, trust, body corporate, karta of Hindu undivided family (HUF), holder of power of attorney cannot nominate.
If nomination is not done, and when a person dies, his/ her legal heirs will have to go through the process of producing all kind of certificates like death certificates, proof of relation etc., for each legal entity! But if there is nomination done, the financial institute is bound to transfer all your assets to the nominee. The company then goes out of scene & then, it’s between nominee and legal heirs based on 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.
Nominee for bank account
In the event of death of any of the bank account joint holders, the benefits will be transmitted to the surviving holder’s name. However in the case of death of all the joint holders or single holder, the benefits will be transmitted to the nominee account, as per the Banking Companies (Nomination) Rules, 1985 framed under Banking Regulation Act, 1949.
Authorized dealers may also allow remittance of funds lying in the NRE/ FCNR accounts of the deceased account holder to their non-resident nominees subject to a signed declaration to the effect that all the legal heirs are non-residents.
As per a Supreme Court bench of Justices Aftab Alam and R M Lodha in an November 2010 order (Ram Chander v/s Devender Kumar) said that Section 45ZA(2)(Banking Regulation Act 1949) merely gives the nominee the exclusive right to receive the money lying in the depositors’s account. But it does not make the nominee the owner of the money and it should be distributed among the claimants in accordance with the Succession Act of the respective community.
As per RBI circular dated 12 July 2005:
(RBI/2005-06/48. RPCD.CO.RF. BC.No.12/07.38.01/2005-06)
- In cases with survivor/ nominee clause, payment to the survivor(s)/ nominee of the deceased depositors will be made without insisting on production of succession certificate, letter of administration or probate, etc., or obtaining any bond of indemnity or surety from the survivor(s)/nominee, irrespective of the amount standing to the credit of the deceased account holder.
- In case where the deceased depositor had not made any nomination or for the accounts other than those styled as “either or survivor” (such as single or jointly operated accounts), before releasing the funds (above minimum threshold), the bank may ask for production of documentation like authorization from the survivor(s) / nominee; letter of indemnity.
- In the event of the death of the term depositor, banks are advised to allow premature termination without any penal charge.
- Where money flows in the name of the deceased depositor has to be credited, bank may open an account styled as ‘Estate of Shri ________________, the Deceased’, provided no withdrawals are made.
Nomination for Safe Deposit Lockers
Nominee can claim the proceeds of the safe deposit locker, post the demise of the original locker holder, without bank insisting upon a Succession Certificate, Letter of Administration or Court Order. The nominee holds the monies in the capacity of a Trustee on behalf of the legal heirs of the deceased locker holder and the Bank’s liability is duly discharged on payment to the Nominee. Safe deposit locker holder can also appoint a minor nominee, but complete details of the guardian should be furnished.
Nominee for Demat account
For a jointly held demat account, in case of death of any of the joint holder(s), the securities will be transmitted to the surviving holder(s). Only in the event of death of all the joint holders, the securities will be transmitted to the nominee.
The benefit of nomination is that in the event of death of an account holder(s), the Depository Participant (DP) can transmit the securities held to the nominee(s) without insisting upon a Succession Certificate, Letter of Administration or Court Order. The nominee has to submit a duly filled-in transmission form, notarised copy of death certificate and an affidavit in the prescribed format to the DP.
In case nomination is not made by the sole account holder, the securities would be transmitted to the account of legal heir(s), as may be determined by an order of the competent court.
If there is no will, anyone who has been nominated for the shares will be the ultimate owner of those stocks, The succession laws on inheritance will not be applicable but in case there exists a will, that will be the final authority. Nomination favouring a minor is permitted on the condition that a guardian is appointed.
Justice Dalvi noted in a Supreme Court petition filed by the widow Harsha Nitin Kokate “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.”
But recently (April 2015) in the case of Jayanand Salgaonkar vs Jayashree Salgaonkar, Bombay High Court judge Gautam Patel ruled that the nominee is just a trustee and accountable for the property (assets) to the legal heirs to that property. Hence nominee does not become the owner of the shares/ debentures so entrusted.
Nomination in Mutual funds
In case of mutual funds, nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.
Nominee for Insurance
Nominee is a person who receives the benefit in case of death of the insured person. The insured person chooses his/her nominee/s at the time of buying the life insurance policy. Nominee is usually the spouse, children or parents. The insured person can nominate one or more person as his/ her nominee and can also specify their shares in the policy proceeds.
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.
In case you want to nominate a non-family member like a friend or third party, you will have to 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.
Nomination prevents disputes and delays in settlement of death claims, by establishing a clear title to the policy at the time of the unfortunate event. If the nominee is a minor, an appointee is required since they are ineligible to receive claims directly.
One can have also multiple or successive nominations, which implies that the claim money will be first paid to nominee A; failing him, the insurer will call nominee B; failing B, nominee C will be entitled to the policy benefits, and so on.
Nomination can only be made by endorsement on the policy itself. But, Assignment can be effected either on the policy itself or by a separate deed. Assignment of an insurance policy is a transfer or assignment of all rights and liabilities of the insurance policy in favour of the assignee. An assignment once made is irrevocable. On the other hand, nomination can be cancelled or changed as many times as one wants to.
As per Section 38 of the Insurance Act, an assignment usually cancels a nomination, but an assignment made in favour of the insurer, in consideration for a loan granted against the security of the insurance policy, does not cancel the nomination.
In the absence of a nomination, if you have a will, the proceeds will be distributed according to the wishes that you have stated in your will. This is according to the Indian Succession Act, 1925.
In the absence of a nomination and will, the insurance company shall pay the policy moneys to the applicants (Class I legal heir, that is, to son, daughter, spouse and mother) who produces the Grant of Probate or Letters of Administration or Distribution Order, succession certificate etc. In case there is more than one legal heir, the insurer will call for a joint discharge statement, waiver of legal evidence and an indemnity bond.
Nomination in PPF
If you have not nominated anyone for your PPF account, your legal heirs will get maximum of Rs1 lakh only! If the balance is more than one lakh, the production of Succession Certificate will be necessary. Also, you cannot nominate anyone if you open an account for a minor.
10 documents to secure before some one dies
(Source: Economic Times)
Keep these essential papers in place and inform at least one family member so that your heirs don’t have to run from pillar to post to inherit what is rightfully theirs:
- Primary documents like birth certificate, marriage certificate, PAN card, passport, election ID card and the Aadhaar card, will be needed when transferring assets to your heirs.
- Make a list of all the Insurance policies, mentioning the name of insurers, policy numbers, insured sums and the tenures.
- If you have a Pension account, mention the account number and nomination details. Give the pension account number with your employer.
- All property-related documents including mortgage details. If property is insured, mention policy coverage.
- Make a list of various bank accounts, giving the name of the bank, the account number, holding pattern and the nomination details.
- Mention the name of bank, locker number, ownership pattern and whereabouts of the key. Maintain an inventory of items kept in the locker and update every time you operate it.
- Give the name of depository partner, demat account number and nomination details. If possible, update the details of the securities in the demat account.
- Give details of other investments like PPF account and folio numbers of other post office investments. Make a list of mutual fund investments, mentioning folio numbers, ownership pattern and nomination details.
- If you have taken or given private loans to relatives or friends, mention the amount and the date by when these are payable/ receivable.
- Though Online passwords are to be kept secret, keep a list for emergency reference. Mention the website, the online ID and the password.
This information is to be kept secret and accessed only if the main breadwinner of the family has either died or is in a medical emergency. Make sure to update the information regularly.
Please use this information as a guide but NOT as a replacement for legal opinion. The information is compiled from various sources like Moneylife Magazine, Economic Times, goodreturns.in, bemoneyaware.com, bank and insurance companies websites and personal experience of the author of this website.