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Legal Heirs Vs. Nominees

                                          

As 2019 comes to an end and 2020 is knocking at the door, it is clear to cloud over the myth that the Legal Heirs and Nominees are same.

Is Legal heir and Nominee the same?

I wonder how many of us are aware of this legal twist.

Read on...

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 who 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 then 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 L.I.C 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 HarshaNitinKokate, 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.

*Very Important message for all middle aged people*

Our team at DiL SE Will is striving hard to bring awareness about the importance of making Will in India. We are way in making all possible effort to make the task of Will creation easy and a hands on job. Make it your priority, your “to do” for 2020.

It is no more a luxury. It is a necessity.

Thanking You.

DiL SE WiLL is wishing you a long and healthy life.

We celebrate your success in life.

Let’s add the awesomeness in our lives.

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Happy Senior Citizen's Day!!

What every woman in India must know about her inheritance rights

https://timesofindia.indiatimes.com/india/what-every-woman-in-india-must-know-about-her-inheritance-rights/articleshow/70606122.cms?utm_medium=referral&utm_campaign=iOSapp&utm_source=WhatsApp.com

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Can Nomination supersede Will?

For a lot many of us this question will seem to have an obvious answer as considering nomination to be the solution to handing over properties and legacies. The truth speaks otherwise; a nominee is not the ultimate benefactor of the property or asset left under their care. Let us start with a basic understanding of what 'Nomination' is. Nomination is a process of designating a 'nominee' during the lifetime of the owner, the nominee in case of a sudden demise of the owner "acts as the caretaker and an 'in-between’ possessor of the property". One should note that neither the nominee becomes the sole owner of the property after the death of the caretaker nor receives any superior right of ownership, it is only for the period in between the death and necessary arrangements to be carried out by the legal heir to come in possession of the property or asset, that the nominee holds the property or asset under their care. Whereas on the other hand a Will ensures that all your hard work's earning is rightfully received by the people for whom you meant it to be for. It is an expression of one's specific instructions on how and between whom their all properties and assets are to be distributed, also containing the possibilities to impose clauses within to ensure legitimate succession.

There is a common misunderstanding among a lot of people that just leaving behind a designated nominee might act as a will or supersede succession laws, but that is nothing more than a myth. To make it easier to understand let us consider three persons, ‘A’, ‘B’ & ‘C who have recently passed away.

·         ‘A’ has neither left any designated Nominees nor left behind a Will.

·         ‘B’ has left behind a Will.

·         ‘C’ has left behind designated Nominees as well as a Will for all his assets and properties.

Now let us discuss how the properties and assets of the three deceased people be distributed among their close and loved ones-

1. In case of ‘A’- Existing laws of succession will come into play for deciding who would be the legitimate successor of ‘A’. Considering that ‘A’ is a Hindu, according to Hindu succession act the property of a Hindu male is to be divided equally among the 'Class I' heirs which consists of the wife, son, daughter and such others. In absence of any such heirs, the property is to be equally distributed among the 'Class II' heirs which consists of the brothers, sisters and such others.

2. In case of ‘B’- The functions and powers of a properly constructed Will supersedes the powers of nomination. Hence ‘B’ distributed his properties among the beneficiaries as per his own wishes. All specific instructions and clauses mentioned in the Will of ‘B’ will be carried out in presence of legal authorities, ensuring that no beneficiary is deprived of any property or assets in any possible ways.

3. In case of ‘C’- All properties of ‘C’ will be handed over to the designated nominees. Though as discussed earlier, only for the period during which the legal heirs or successors carry out necessary proceedings to legally come in possession of those assets and properties. Note that succession laws will come into consideration even if there are nominees for those properties and assets available. Yet a properly constructed Will even though there are nominations made for all properties and assets will ensure that all the specific instructions as penned down on the Will are carried out. Thus ‘C’ will have all his properties and assets handed out to the nominees for caretaking as long as it takes to fulfill the clauses and instructions of the Will to handover the properties to the actual desired beneficiary.

Though there are few exceptions where Nominations override Wills-

a) In case of shares held by the owner.

b) In case of an E.P.F (Employees’ Provident Fund) held under the owner’s name.

c) Debentures held by the owner.

d) Others.

In famous Indrani Wahi case judgment by the Supreme Court, the law had made it clear that a nominee by no ways gains any interest out of the property but only ensures that the property or assets does not stay under lockdown suffering a commercial loss until proper proceedings are carried out by the legal heirs to come in possession of such property or assets.

So what do you think will happen to your properties and assets after your demise? Would you like to watch your hard earned assets be distributed among the people you don't actually consider to be close and loved? Or would you rather rest in peace knowing that your hard work will pay off and be enjoyed by the people you so loved and considered closest to you?

The three cases discussed above makes it clear that making a Will during your lifetime is the best bet to ensure proper and desired distribution of your properties and assets after you have passed away except the few cases where nomination overpowers a Will. Make a Will now and ensure that peace of mind for yourself and your loved ones. No one can predict the time of their demise, the more you procrastinate, the riskier it becomes for your close ones.

Our team at DiL SE Will promises to be by your side, working for the best of your interests, being there to solve and where answer all your doubts and queries related to a Will. Providing you with an option between offline and online Wills. Either you can visit us at our office with your specific requirements and instructions or you can enjoy the privileges of a team of lawyers working on your will from the comfort of your home, everything according to your individual specifications. So why wait? Go leave a Will behind!