1. 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, if a will is not done. 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.

2. 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 pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund or 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.

2.1 Nomination in Saving/Current/FD/RD Account in Banks:

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. In the same way to change/cancel the nomination, you need to fill up Form no DA-2.

2.2 Nomination in PPF:

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! You can nominate one or more persons as nominee in PPF. Form F can be used to change or cancel a nomination for PPF. Nomination cannot be made in Minor PPF account.

2.3 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, he/she should have   some insurable interest for the person. Policies issued under Married Women’s Property Act cannot be assigned.

2.6 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 also be a nominee, subject to the exchange control regulations in force from time to time.

2.7 Nomination in Shares:

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. Hence, 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.

Execution of Nomination and Will

The nominee has to submit the death certificate and complete the KYC requirements to get the proceeds transferred in his/her name. In case of will, one has to apply for probate in a civil court. If the owner of the asset dies intestate i.e the legal heirs have to get the legal heir certificate from the Tahsildar and apply for Letter of Administration from the Civil court. It is a cumbersome process in comparison to Probate.

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 and grumble.

CONCLUSION:

You need to be well versed with basic legal aspects and make sure you carry out all due arrangement in nomination and will. Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future.