In one of my earlier jobs, I met a young lady who, I was shocked to hear, was a widow. She was in her twenties and her husband had met with an accident. One day, when chatting with her, she told me of the financial problems she faced after her husband's death.
He had an insurance policy where he had nominated his father. His father passed away and the nomination was not changed. On her husband's death, she had to complete a tedious legal formality, establish her right and only then did she receive the claim.
She also discovered that his sibling was the nominee on his Public Provident Fund. He never changed it after he got married. And, since the sibling was alive, she did not feel inclined to claim any of that money.
She is not alone. Stories abound of how parents pass away and leave their children trying to sort out the financial mess of who gets what.
There is a way out: either hold it jointly or nominate someone.
Let's take the example of a bank account. Holding it jointly is convenient. In fact, the banking guidelines state a number of ways it can be held.
Either or Survivor
If one of them passes away, the entire money goes to the survivor. This is good if there are two joint account holders.
Anyone or Survivor/s
Let's say the account is held jointly in the names of three individuals. If two of them pass away, the survivor gets all the money.
Latter or Survivor
This is held in two names. The second named account holder operates the account and has full right over the entire amount. Only on the latter's death will the survivor step in and get the money.
Former or Survivor
Same as above. But, this time, the first named account holder operates the account. The survivor steps in only on the death of the former.
If the investment is not held jointly, you could look at nomination. In simple lingo, a nomination is just a statement of who should get your money when you are not around.
A common investment, the Public Provident Fund, does not recognise a joint holder but only a nomination.
In the event of the holder's death, the nominee can 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 However, if not withdrawn, it would continue to earn tax-free interest till maturity.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 nominee. But once the account holder dies, no fresh deposits can be made into the PPF account.
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.
A friend was telling me how he approached a nationalised bank when his father expired and was told there was no nominee to his late father's bank account. But, on verifying their records, they discovered his mother was the nominee.
Apparently, the bank staff had forgotten to update the nominee form in their computer system.
That is why it is important to maintain all documents carefully.
- Talk to your parents and ask them where their money is invested. Urge them to document all their certificates and investment receipts and keep it in one file (let's call it file A).
- Ensure all the investments are jointly held or at least nominated. If your parents have not nominated anyone, tell them to do so.
- Maintain a record of how much is in each bank or investment and who the nominee or joint holder is. Keep all this information in another file (file B).
- Photocopy certificates and other such important documents in File A and keep them in file B. Should file A get misplaced, you have a back-up.
Even if you are young and feel you don't have much, nominate someone for whatever you do have.
Where money and investments are concerned, leave nothing to chance.
Here are some points to note.
1. You don't have to nominate a family member. You can nominate whoever you want. After all, it's your money. You can change the nominee whenever you want. You do not have to inform the person you are nominating. If you change the nominee, you do need not inform the earlier nominee of 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). Do note, when you nominate a minor, you have to state a guardian too.
3. If the person you have nominated is no longer alive, change the nomination. For instance, you might have nominated a parent to receive an insurance claim in the event of your death. But, once you are married, it may make sense to change the nominee to your spouse.
Or, you might have a sibling nominated for an investment but, after marriage, you may want it to be your spouse or child.
If the nominee dies before you and you do not change the name and something happens to you, your legal heirs can claim the money.
