Nominee, Heir and Will

Introduction:

This topic is very important for all of us. The article is written based on various contents available on social media and online portals. Most of the sources seem to have incomplete information & were found to differ in certain content with overall lack of clarity. The discrepancies were studied, understood researched to arrive at appropriate information based on most authentic data available. The reason for sharing this information is to remove ambiguity and lack of clarity in the subject matter, and provide as much authentic information as possible, as it is of importance to all of us. I continue to research the subject and would request readers to provide genuine feedback if they find anomalies, missing links, or suggest corrections/updates if any.

Is Legal Heir and Nominee the same? 

Many of us may not be aware of this legal twist. Will your Nominee get and own all the money legally from your Life Insurance Policy, Bank Deposits, and investments in Mutual funds/shares? We assume a lot of things which sounds like they are obvious, but are not true from the legal point of view. Here, we will look into Nomination, Heir and Will in financial aspects.

Who, do you want to leave all your wealth to, in case something happens to you? It might be your children, spouse, parents, siblings etc., or just a subset of these. You also might want to exclude some people from your list of your legal heir/beneficiaries. So, you think you will nominate person X in your Insurance policy, and after you, all the money goes to person X and he/she becomes the sole owner? You are wrong.

It does not work that way. According to law, a nominee is a person appointed by the investor who is entitled to receive the proceeds of the investments made by the original investor upon his/her death. A nominee as a trustee is just caretaker of the assets and not the owner, and is legally bound to transfer it to the legal heirs. For most investments, legal heirs are entitled to the assets left behind in equal share if there is no will created. 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 means any person who is entitled to succeed to the property of a deceased person under a Will or as per the succession laws. Will is a legal document that specifies the wish of the owner of properties regarding the distribution of assets after his/her death. The Will made by an individual supersedes the nominations and succession law for most of the assets. A Will is a ‘supreme’ document that specifies the exact intentions of the testator to the succession of properties. In the absence of Will, Indian Succession Act, 1956 or Muslim Law will apply. An individual must ensure he/she creates a Will even if nominations have been made, and ensure that the contents of the Will are harmonised with the nominations.

Why is the concept of Nominee?

If the nominee does not become the sole owner, why does such a concept of a nominee exist at all? It is simple. After your death, you want to make sure that the Insurance company, the Banks, Mutual funds or your Shares should at least get out of the companies, and go to someone you trust who can further help, in process of passing it to your legal heirs. Otherwise, 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. So, to simplify, if a nominee exists, these hassles do not happen, since the company is bound to transfer all your money or assets to the nominee. The company then goes out of scene & then, it is between nominee and legal heirs.

PF Nomination:

The nominee can only collect the accrued amount on death of the subscriber but is not allowed to continue contributing to the PPF account, because a PPF account is not transferable. However, it can be continued with existing deposits till the maturity that will fetch you interest. But it is riskier to continue the PPF account after the death of the account holder because a nominee can’t appoint a nominee. In case, if the nominee also dies when the account is continued, the claim becomes complicated.

If nomination is not mentioned in the PPF account, then the balance amount goes to the legal heirs or holders of succession certificate. Nomination is not allowed for an account opened on behalf of a minor.

Key Takeaways:

§      In most of the cases (Banks, Post Office, Insurance, Mutual Funds, Shares etc.), the nominee first receives the proceeds of the deceased irrespective of whether he is a legal heir or not, but the nominee is bound to transfer it to legal heirs.  

§      In absence of Nomination or Will, your legal heirs will have to go through a process, which is really cumbersome, to claim the assets.

§      The Will supersedes the nominations and succession law for most of the assets and establishes actual heirs – beneficiaries. Without Will, nomination alone is not sufficient to transfer all the assets to a particular individual of your choice.

§       An individual must ensure he/she creates a Will even if nominations have been made, and ensure that the contents of the Will are harmonised with the nominations.

§      There are disputes in some cases on transfer or sharing the assets among nominees and legal heirs, which are resolved by the court of law depending upon the case by case basis.

Conclusion:

Just investing knowledge, is not 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 arrangements. Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future. Also ensure that you create a Will. It’s important to make sure that your loved ones do not face issues when you are not around, in terms of legal hurdles, get exploited, and sometimes may lose their legitimate rights to your assets and properties.