Every time we invest or open an account, we are in a hurry to complete the documentation as most of us find it a painful exercise.
The most important aspect of these forms is mentioning nomination details. Filling nomination details may not seem important at the time of making the investment, however, the need arises when there is an unplaned event. In such situations, the next of kin will have a tough time claiming the proceeds in case of the depositor’s demise.
What is a nomination?
Nomination enables the asset holder to nominate (propose or formally enter as a candidate) an individual to claim the proceeds upon his/her death.
“Anyone can be made a nominee for your investments. It doesn’t necessarily have to be a blood relation but ideally, someone who can be trusted with your money,” Shweta Jain, financial planner and founder of Investography said.
While filing these nominations, one must ensure to mention the correct details of the nominee so as to avoid any confusion later.
How many people can be nominated?
Only one nominee can be appointed with respect to bank deposits and lockers. However, insurance companies allow successive/alternative nominations for up to three nominees.
Certain government schemes like Senior Citizen Savings Scheme (SCSS) and Public Provident Fund (PPF) provide the facility of joint nomination as well. This allows the depositor to fix a percentage of the amount to be divided amongst two nominees.
Benefits of nomination?
Claiming the assets of a depositor after a sudden death can be a very long process for family members/relatives. One requires a host of documents that includes death and succession certificates followed by court orders in some cases. The deceased’s funds rest with the court until required documents are received and this process may take many weeks.
“Smooth transition is the most important criteria in case of a person’s death as the family of the deceased is going through a tough time. Having a nominee makes the process smoother and easier,” Jain asserted.
She further explained that the process of getting these funds becomes accessible when you have a nominee for the deceased. Banks release the funds to the nominee and it requires minimal paperwork.
‘Will’ overrides nomination in the court of law
It must be understood that a nominee is only a trustee/custodian of your investments in the eyes of the law. He/she is eventually bound to transfer the funds to the heir of the depositor (if the nominee and heir are different individuals).
“In case a person’s will has a different beneficiary other than the nominee, the will supersedes and the nominee must ensure a smooth transition of assets to the beneficiary,” Jain said.
While a ‘will’ overrides nomination in the court of law, financial institutions often transfer the funds to the registered nominee and get rid of their liabilities in case the depositor dies.
In the case of mutual funds, if one doesn’t appoint a nominee then the funds go to the beneficiary in accordance with the will. But if a nominee is appointed, funds are released to the nominee who is then liable to transfer it to the beneficiary’s account.
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