WRITING A WILL
Very Important - Please Read, Understand & Action
Will your Nominee get the money on your death ?
Did
you think that your nominee is the person, who will get all the money
legally from your Life Insurance Policy and Mutual funds investments?
Ha! That is exactly what you think if you are not aware of the legal
aspects. We assume a lot of things which sounds like they are obvious,
but are not true from the legal point of view. Today, we all concentrate
on nominations in financial products.
For
whom are we earning? For whom are we investing? Who, do we want to
leave all our wealth to, in case something happens to us? It might be
your children, your spouse, parents, siblings etc., or just a subset of
these. You also might want to exclude some people from your list of
beneficiaries!. So you think you will nominate person X in your
Insurance policy, and when you are dead and gone, all the money goes to
person X and he/she becomes the sole owner? You are wrong, dude ! It
does not work that way. Let us see how it actually does!
What is a nominee ?
According
to law, a nominee is a trustee not the owner of the assets. In other
words, he is only a caretaker of your assets. The nominee will only hold
your money/asset as a trustee and will be legally bound to transfer it
to the legal heirs. For most investments, a legal heir is entitled to
the deceased’s assets. For instance, 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 will be the one whose is mentioned in 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. For example, if a man during his lifetime executes a
will. In the will, he mentions his wife and children as legal heirs,
then after his death, his wife and children are the legal owners of his
assets. It is essential that one needs to execute a will. It is the
ultimate source of truth and replaces the succession law. Nominee can
also be one of the legal heirs.
Important
· Mention the Full Name, Address, age, relationship to yourself of the nominee.
· Do not write the nomination in favour of wife and children as a class. Give their specific names and particulars existing at that moment.
· If
the nominee is a minor, appoint a person who is a major as an appointee
giving his full name, age, address and relationship to the nominee.
Why is the concept of nominee ?
So you might be wondering, if the nominee does not become the sole owner, why does such a concept of a nominee exist
at all? It is pretty simple. When you die, you want to make sure that
the Insurance company, Mutual fund or your shares should at least get
out of the companies and go to someone you trust, and who can further help, in process of passing it to your legal heirs.
Otherwise,
if a person dies and has not nominated anyone, 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! (For each legal entity! The
insurance company, the mutual funds, for the shares, for the real
estate..) . 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 the goes out of scene & then, it is
between nominee and legal heirs.
Example of Nomination
Ajay
was 58 years old who died recently in an accident. As his children were
settled, he wanted to make sure that his wife is the sole owner of all
the monetary assets. This includes his insurance policy and mutual
funds. So during his lifetime, he nominated his wife as a nominee in his
term insurance policy and mutual funds investments. However, after
Ajay’s death things did not turn up the way he wanted. The reason being Ajay did not leave a will.
Though his wife was the nominee in all his movable assets, as per the
law, his wife, along with children, were the legal heirs and all of them
had equal right to Ajay’s assets.
One
simple step which could have saved the situation was that Ajay should
have made a will which clearly stated that only his wife was entitled to
get all the money and not his children.
Nomination in Life Insurance
A
policyholder can appoint multiple nominees and can also specify their
shares in the policy proceeds. Nomination in life insurance has one
limitation, as insurance policies are bought to secure your financial
dependents, your first choice of nominee has to be your family members.
In case you want to nominate a non-family member like a friend or third
party, you will have to show/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. Note that
provision of nomination in life insurance is related to Section 39 of
the Insurance Act.
Note that as per LIC website –
Nomination
is a right conferred on the holder of a Policy of Life Assurance on his
own life to appoint a person/s to receive policy moneys in the event of
the policy becoming a claim by the assured’s death. The Nominee does
not get any other benefit except to receive the policy moneys on the
death of the Life Assured. A nomination may be changed or cancelled by
the life assured whenever he likes without the consent of the Nominee.
Make
sure, you have a nominee for your policy for easy settlement of the
claim, if you do not have any nominee mentioned in the policy, it can
turn out to be a disaster for your dependents to get a claim.
Nomination in Mutual funds
In
case of mutual funds, you can nominate up to three people, who can be
registered at the time of purchasing the units. While filling in the
application form, there is a provision to fill in the nomination
details. Even a minor can be a nominee, provided the guardian is
specified in the nomination form. You can also change nomination later
by filling up a form which is available on the mutual fund company
website. Nomination in mutual funds is at folio level and all units in
the folio will be transferred to the nominee(s). If an investor makes a
further investment in the same folio, the nomination is applicable to
the new units also. A non-resident Indian can be a nominee, subject to
the exchange control regulations in force from time to time.
Nomination in Shares
Quiz
for you . Now you know what a nominee means and who actually gets the
money. So if there is a husband H, with wife W and nephew N, and he has
nominated his nephew N to be the nominee of his shares in demat account,
who will have the legal right to own the shares after husband’s death?
If you answer is wife, you are wrong in this case! In case of stocks, it
does not work the usual way, if a will does not exist.
In
the verdict, Justice Roshan Dalvi struck down a petition filed by
Harsha Nitin Kokate, who was seeking permission to sell some shares held
by her late husband. The Court noted that as she was not the nominee,
she had no ownership rights over the shares. Ms Kokate’s lawyer had
argued that as she was the heir of her husband who had died intestate
(without a will), she should have ownership rights of the shares, and be
able to do anything with them as she wished. In this case, Ms Kokate’s
husband had nominated his nephew in favour of the shares. Justice Dalvi
however noted that under the provisions of the Companies Act and the
Depositories Act, Acts which govern the transfer of shares, the role of a
nominee was different.
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 there under in the nominee upon nomination validly made
as per the procedure prescribed, as has been done in this case.
It
means that if you have not written a will, anyone who has been
nominated by you for your shares will be the ultimate owner of those
stocks, The succession laws on inheritance will not be applicable but in
case, you have made a will, that will be the source of truth.
Nomination in PPF
Let
me give you some shock first. If you have Rs 10 lakh in your public
provident fund (PPF) account and you have not nominated anyone for your
PPF account, your legal heirs will get maximum of Rs1 lakh only! Yes, it
is so important to have a nominee, now you get it . You can nominate
one or more persons as nominee in PPF. Form F can be used to change or
cancel a nomination for PPF. Also note that you cannot nominate anyone
if you open an account for a minor.
Nomination in Saving/Current/FD/RD Account in Banks
FD’s
also come with nomination facility. While opening a new account, there
is a column for nomination in the same form and you should fill it. You
can nominate two persons with first and second option. Note that in case
you have not done any nomination till now, you should request Form No
DA-1 from your Bank which is used to assign a nominee in future.
(Examples of ICICI Bank , HDFC Bank , Canara Bank) . In the same way to
change/cancel the nomination you need to fill up Form no DA-2. Read
about Corporate Fixed Deposits
As
per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an
order said that the money lying deposited in the account of the original
depositor should be distributed among the claimants in accordance with
the Succession Act of the respective community and the nominee cannot
claim any absolute right over it.
Section
45ZA(2)(Banking Regulation Act) merely put the nominee in the shoes of
the depositor after his death and clothes him with the exclusive right
to receive the money lying in the account. It gives him all the rights
of the depositors so far as the depositors account is concerned. But it
by no stretch of imagination make the nominee the owner of the money
lying in the account, the Bench observed.
Conclusion
Now
you know! Taking Personal finance for granted can be fatal 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 arrangement . Nomination is one important aspect you
should seriously consider, when checking for the financial products you
have bought or plan to buy in future.
Mistakes in Personal Finance
It’s
important to make sure that your loved ones do not face legal issues
and only say and think lovely thoughts about you when you are not
around, rather than crib & grumble.
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A SUGGESTED DRAFT WILL
JOINT WILL OF ABC AND DEF
We, ABC and DEF, husband and wife, resident of..... . hereby declare this as our last WILL and testament.
We got married on..... according to ...... rites. We have.... children. Particulars of our children are as under:-
1. GHI (son), Date of Birth.... He is currently residing at....
2. JKL (son), Date of Birth.... He is currently residing at....
We,
ABC and DEF, declare that in the eventuality of anyone of us
predeceasing the other, we bequeath our property, both moveable and
immoveable and of any nature whatsoever, to the survivor. He or she will
have the sole ownership and rights and power of disposal.
We hereby appoint the survivor as EXECUTOR of this will.
Further,
in the eventuality of us both dying within short span of each other or
without the survivor making a WILL, we bequeath all our property, both
moveable and immoveable and of any nature whatsoever, to be equally
shared between our sons. For this purpose we appoint our son, GHI, as
the EXECUTOR of this WILL.
In
witness whereof, we ABC and DEF, have signed at ....... (place), on
this ......... (date in words) day of ....... (month in words), year
2014.
(ABC)
Signed
by the said ABC and DEF in the presence of us, present at the same
time, who in their presence and presence of each other, sign as
witnesses hereto.
(MNO)
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