Here’s everything you need to know about nominees for various financial products.
Abhishek was 30 when he opted for his first Life Insurance policy. Being a bachelor at that time, he made his brother a nominee. Sadly, Abhishek met with accidental death at the age of 40. As Abhishek forgot to change the nominee in his first policy post his marriage, does his wife get the death benefit? Or does it go to his brother?
Majority of people are not aware of the significance and difference between a nominee and a beneficiary.
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So here is a look at the nomination rules for various financial products.
The Meaning Of Nominee
A nominee is like a trustee who will look after your financial accounts, assets and instruments when you are no more in this world. He/she may not be the heir of the asset in your absence but has the right to hold it and transfer the same to your legal heirs or legal nominees.
The basic reason why you should appoint a nominee for all your financial instruments is that there should be someone you trust to get the ownership of your assets in your absence. The person can be your legal heir or someone you trust, who will pass it on to your legal heirs.
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Nominee Versus Legal Heir
A nominee can be the same person as a legal heir as mentioned in the will of the deceased. If as per the will of the deceased, someone else has the rights to inherit his/her assets, the nominee will have to facilitate a transfer of the same. In the case of Abhishek; as his wife is the legal heir of his properties, the nominee (his brother) cannot be the beneficiary of the insurance amount.
Abhishek here has not executed a will, but his legal heirs are decided as per succession laws.
Rules Of Nomination In Banks And Other Financial Instruments
Various financial instruments have their own set of rules for registering nominee/s. Here is a look at the nomination rules for some popular financial instruments.
Savings Bank Account and FD: The nominee for a Savings Account or FD is registered as per the Section 45ZA(2)(Banking Regulation Act). As per this, the nominee has all the rights to receive the money from the bank account, albeit bank laws do not have any association with succession laws. You can decide who can be your nominee in a bank account. But in the event of any dispute between the nominee and the legal heir, succession laws legality must be checked with a lawyer.
Life Insurance: You can appoint one or multiple persons as your nominee for your Life Insurance. Life Insurance nomination process is governed under the rule Sec 39 of Insurance Act 1938. Your nominee will be the legal owner of your claim amount. But if the nominee is not the legal heir or if he is not appointed as the beneficiary of the amount through a registered will, then he/she will act as a caretaker and has to settle the funds as per the will. If there is no will, then the nominee must distribute the funds to all legal heirs as per the succession law.
PPF: If you have a PPF account, make sure that your nomination is in place to avoid any problems after your demise. You can nominate one or more persons as a nominee in PPF. Form F can be used to change or cancel a nomination for PPF.
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If you happen to die without having a nominee for your PPF account, your legal heirs will get maximum of Rs 1 lakh only. So having a nominee is very important here.
Mutual Funds: If you are investing in Mutual Funds, you have an option to appoint up to three nominees for your fund units. If you haven’t registered anyone as a nominee at the time of purchase, you can always do it at a later stage by filling the nomination request form online or offline. In a Mutual Fund, the nomination is done at the folio level. This means that all units in the folio will be transferred to your nominee after your demise.
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Shares and Equity: For shares, the role of a nominee is quite straightforward, unlike other investment instruments. As a nominee, you will be the rightful owner of the shares of the deceased irrespective of whether you are the legal heir or not. This means that you must be careful while appointing a nominee for your shares, as the person will become the rightful owner of your investments after your demise.
A nomination is as much a part of a good personal investment plan as choosing the right financial instrument. And always make necessary changes in your nomination, when you change your status from bachelor to married or from married to divorce.
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But if you are thinking that appointing a nominee will suffice and a will is not required, you are wrong. A will can always help your family members or legal heirs acquire your financial assets easily.
Disputes between nominees and legal nominees can be settled through civil courts, which is a lengthy process. So make sure that your loved ones do not face a problem in accessing the funds when you’re not around.
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