verytime you invest your money, you are given the option to nominate someone.
But, you just can't be bothered with these formalities. Right? Big mistake!
Forgive me if I sound a bit morbid, but hear me out.
What if you were to meet with a fatal accident tomorrow? Who would collect the money in your savings account and fixed deposit? Who would lodge a claim for the proceeds on your life insurance policy and mutual funds?
In short, in whose hands will your wealth be entrusted?
You might say that it will all go to your spouse, parents or children.
After all, everyone knows who they are, don't they? And the institutions that handle your money right now will be sympathetic enough to smoothly transfer the monies to their names. Right?
Wrong!!!!
If the absence of a process called nomination, nothing would work as smoothly as you imagine.
After the death of a person, it is common to see family members and relatives frantically scurrying around, trying to piece together the dead person's assets, besides doing the rounds of lawyers' offices and courts, trying to transfer ownership. This process could take years and cost thousands of rupees.
In short, lack of nomination for financial assets implies lack of responsibility.
Who should nominate?
The moment you have some financial asset, you should nominate. It could be a bank account, a mutual fund, a bond or shares.
If your parents have not done so, tell them to do it too.
Anyone and everyone who has entrusted his money somewhere should nominate someone for it.
How does it work?
Nomination is similar to a will. It is your statement of who should get what if you are not around.
You can nominate anyone to be the beneficiary of the funds after you are gone.
The key difference is that while a will talks about (and deals with) all your financial assets and how they are to be divided among inheritors, nomination deals with one financial asset (such as a bank fixed deposit, savings account, life insurance policy, etc).
Bank accounts
When opening a savings account or a fixed deposit with a bank, ask for the nomination form.
Some banks, in fact, make the nomination process a part of the application form itself and there is no need to fill up a separate form. You will have to fill in details of who the nominee is in the presence of two witnesses. It won't take more than a few minutes but it will save a lot of time and hassles for your loved ones if something unfortunate were to happen to you.
Another way of making sure that the money goes to the right person is to have the beneficiary as a joint account holder with you. If you tell the bank that the money should go to "either or survivor" when the account or deposit is closed, it will be done. No hassles here too.
Life insurance
You nominate a person at the time of taking the life insurance policy itself. Should you die when the policy is still valid, then the one you nominate (beneficiary) will get the money.
Like in banks, it is a simple process of entering that person's name in the policy proposal. You should also get the insurance company to endorse the nomination. Inform your life insurance advisor and he will have it done.
The only exceptions are policies for children where nominations are allowed only after the policyholder turns 18.
Other investments
Make sure that you take a good look at all your investments to ensure that a nomination is in place.
The Public Provident Fund, for instance, does not recognise a joint holder but only a nomination.
In the event of your death, your nominees may withdraw the amount anytime. However, if not withdrawn, it would continue to earn tax-free interest till maturity. On maturity, the amount will be paid to the nominees.
In the case of mutual funds, the nomination process differs from one Asset Management Company to another. Some AMCs give the choice of nomination in the application form itself. Others ask for a separate application form to be filled in.
As for shares, it is done through the demat account. When you open a demat account, you nominate a person to whom
all the securities in the account will be passed on to.
To will or not to will
Your will and nomination could clash. You could nominate someone as a nominee for your fixed deposit but write a Will saying that the proceeds from all your investments go to someone else.
You could also decide to change the nomination for a bank deposit or insurance policy but forget to change name in your Will.
In either situation, what is stated in the Will overrides nomination. This could lead to problems. See that your Will does not differ from your nomination.
The logical question would be: if I write a clear Will for all my financial assets, should I still go for nominations?
Irrespective of whether you have written a Will or not, you should go for nomination since nomination, and not Will, will get the financial institutions to hasten the transfer of proceeds to the nominee's name.
Nomination is the financial institutions own and immediate process. Will, on the contrary, is a personal document.
Even if the Will of the dead person is produced, banks and insurance firms will still take a long time to transfer funds to the legal heirs mentioned in the Will.
What you should know
1. Nothing is fixed. You can change the nominee whenever you want. That too, any number of times. The good part is that you don't even have to inform the earlier nominee about the change.
2. Give complete details about the nominee (full name, date of birth, address) when you fill in the details. This helps to avoid any confusion in case there is a claimant with a similar name staking a claim.
This is particularly relevant in the case of a minor being nominated. Mention crucial details to establish the identity of the minor beyond all doubts and mention the name of the natural guardian and the nature of your relationship with the minor (or the minor's guardian).
3. If the person you have nominated is no longer alive, change the nomination on the investments immediately. I know someone who nominated his mother to receive his insurance claim in the event of his death.
His mother died before him and he did not change the nominee. On his death, his wife had to complete a far longer legal formality, establish her right and only then did she receive the claim.
4. If a policyholder outlives the term of an insurance policy (or the term of a fixed deposit), the nomination is annulled (stands cancelled).
And if the nominee dies before receiving the proceeds of a bank account or insurance policy, the nomination is annulled and the legal heirs can claim the money.
5. The final say on who gets what is the Will. The Will supercedes any nomination.
If there is a nomination and no Will, then the nomination rules.
When there is no nomination made by you, and neither do you have a Will, the amount will be paid to your legal heirs on production of the Succession Certificate or any other legal evidence to show that he or she is an heir.
Illustration: Dominic Xavier
