Can nomination alone protect your loved ones?

October 16, 2019 2:43 PM

Failure to ensure nomination while opening accounts with banks and financial service providers as also neglecting to write a will, are the lead contributors to the subsequent ordeal faced by family members of the deceased.

nomination, write a will, family members, banks and financial service, legal heirsResponsible asset management entails ascertaining a nominee’s actual status and role vis-a-vis the owner’s assets.

By Kumarmanglam Vijay

Banks and insurance companies hold vast sums of money in unclaimed deposits that they are required to transfer to investor protection funds, to the detriment of family members of the deceased account holders. Failure to ensure nomination while opening accounts with banks, financial service providers, and housing societies, as also neglecting to write a will, are the lead contributors to the subsequent ordeal faced by family members of the deceased.

Take, for instance, Jai who mentioned his mother as nominee in his first bank account but failed to update this nomination over the ensuing years. On his sudden demise at 50, the family was beset with difficulties in accessing the funds credited to his bank account, that were compounded when his mother developed Alzheimer’s and became incapacitated.

Another case in point is where a dispute arose between the nominee and the legal heirs over the right to get transfer of ownership of an apartment (evidenced by membership in a cooperative society) where the nominee was not a legal heir. The court ruled in favour of the membership being transferred to the nominee pending settlement of the dispute amongst the legal heirs.

The question that arises for everyone is whether we would rather leave behind easily accessible assets and peaceful coexistence for our loved ones or the burden of litigation and conflicts.

Responsible asset management entails ascertaining a nominee’s actual status and role vis-a-vis the owner’s assets. A nominee is a person appointed by an individual to act as custodian of her/his assets in the event of her/his death. In the absence of a nominee, legal heirs will then have to either settle succession amicably amongst themselves or seek the court’s intervention to determine individual rights and prove each one’s legal status before the respective institutions to get their rightful dues. After an owner’s death, a nominee is not the acknowledged beneficiary of the owner’s assets. Therefore, any assumption that wealth can be distributed by nomination is an illusion, as a nominee is merely a trustee and is required to act in a fiduciary capacity for the benefit of legal heirs determined as per the applicable succession laws.

The most common mistakes in respect of nomination may be avoided by taking a few precautions:

  • The person making the nomination must take proper care in selecting a nominee and filling out the correct details in the requisite forms
  • Nominations should be updated regularly
  • Nominees as well as legal heirs must be informed of the nomination
  • The person nominated should be made aware that the status of nominee is that of a trustee and she/he should comply with the conditions of the will of the individual nominating him
  • If a person is nominated as beneficial nominee, he should also be provided with the same benefit in the will

Where a person wants to distribute his wealth in a manner different from that provided in applicable succession laws, she/he must record her/his intent to distribute the assets in a will. A will is a legal declaration of the testator’s intention in respect of his property which he desires to be carried into effect after his death. Bequests made under a will come into force only after the lifetime of the author of the will.

A will is deemed to be valid when the following conditions are fulfilled:

  • The testator should be of sound mind and have attained majority
  • At least two witnesses are required to sign the will
  • The will should not be made under fraud or coercion

Failure to comply with any of the aforementioned conditions could result in the will being rendered null and void. It is not necessary for the testator to disclose the contents of the will to the witness whose duty is merely to witness the testator’s signature. . Further, any person capable of holding property can be a legatee, including minors and the mentally deranged. However, debts of every description must be paid before the legacy devolved upon legatees can be enjoyed by them.

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To conclude, legal heirs named by the owner in the will, or decided by application of relevant succession laws, are the real beneficiaries of property, and the role of the nominee is to ensure that such property, which she/he holds in trust, is transferred to the said beneficiaries. In case it is intended that the property passes on to the nominated person, this must be stated in a legally valid will, as a mere nomination is not enough for the purpose of transfer of ownership. Therefore, it is vital that the utmost care is taken while appointing a nominee, as financial institutions and third parties dealing with assets are authorized to deal with the nominee to effectively discharge their obligations. Any oversight in fulfilling the rules in respect of nomination can lead to distress for bereaved family members.

( The author is a partner at J Sagar Associates. Views expressed are personal.)

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