Will your Nominee get the money on your death? NO

Will your Nominee get the money on your death?  NO  
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A MUST READ FOR MOST OF US
Quite educative!!


I like to write this article to explain you how Nominee formula works.


Will your Nominee get the money legally on your death ? NO


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'd think if you aren't aware  of the legal aspects.


We assume a lot of things which sounds like  they're obvious, but are not true from the legal point of view. Today,  we'll 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're wrong! It  doesn't work that way. Let's 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 "nominee" exist at all? It's 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 hasn't 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 don't 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's 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 didn't 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 thereunder 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's 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's 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, isn't 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 is important to make sure that your loved one's do not face legal issues and only say and think lovely thoughts about you when you are not around, rather than crib & grumble.