Wednesday, April 11, 2012

Nominations- A must after buying a financial instrument!

In case of the unfortunate demise of a family member apart from the emotional loss, the most unfortunate thing that can happen is not being able to claim funds which belong to the deceased. A nomination ensures that the investments are passed on to the nominee. A nominee is the person who legally receives funds as a “trustee”.
In India the concept of nominee is not clearly understood by the people, they assume that a nominee is a person who receives the money and keeps it with himself. However the law of nomination is otherwise.A nominee is a trustee who is handed over the fund for the benefit of the legal heirs of the deceased. When a nomination is not made it gets too difficult for the legal heirs to claim it as they need to produce the Grant of Probate or Letters of Administration or Distribution Order. Thus we at SAMPARK suggest that everyone should get their nominations done NOW!

How do Nominations work in Various Instruments?

Savings Bank Account: When one opens a bank account a special nomination form is given. The a/c holder needs to fill the form completely and all the copies and original form needs to be signed. There can be only one nominee for each account and the signing needs to be witnessed. Incase of demise of the account holder the nominee needs to approach the bank with all the required documents i.e. claim form, death certificate, proof & customer copy of Nomination. If the legal heirs want to lodge a complaint it would be against the nominee and not the bank as bank has paid the money as per the terms of the nominations filed with them.

Mutual Funds: The Mutual Funds Regulations of SEBI allow nominations for their unit holders. This is beneficial as many people invest through mutual funds. The asset management company provides a nomination facility for their unit holders incase of any sudden demise of the unit holder. Multiple nominations can also be done in Mutual funds. A non-resident Indian can be a nominee, subject to the SEBI rules & regulations. Incase of death the units in the name of the unit holder will be transferred in the name of the nominee.

Shares: Every shareholder can nominate a person to whom the shares will be held by in the event of the shareholder’s death. However incase of shares the rule of nomination at the time of claim is little different. If the shares are jointly held, then the ownership of the shares goes to the surviving holders. The nominee is nowhere in the picture. In case of single holding, the nominee is superior to legal heirs and also to whatever one writes in their will. Incase of death the shares are transferred in the name of the nominee and become entitled to all the rights attached.  Regardless of what is stated in a privately executed will, a company would have to deal with the nominee as a person implementing the rights of the deceased shareholder.

Fixed Deposit: Since most of us have a fixed deposit account it is very essential to have a nominee for the same so that the heirs don’t face any trouble to claim them incase of death of the holder. If the fixed deposit is held jointly, then all the account holders need to give a nomination. The documents need to be signed by all account holders to make it valid. The banks only consider registered nominees and not the legal heirs for claims.

Property: In case of property it is required to nominate so that if the owner dies it can be easily transferred to the nominated person. However nomination only provides the convenience of transferring the property from the name of the deceased to the nominee. The property can always be claimed by the heirs in accordance with the law of succession. A nomination is useful when there is no possibility of challenge or if there is only one beneficiary. Thus it is necessary for the owner of the property not only to nominate but also to have a will mentioning who the property should go to.

Life Insurance: A Life insurance policy holder has the right to nominate a person or persons who shall receive the insured amount in case of death. In fact a nomination is asked at the time of proposal itself. In case of demise, the nominee needs to submit the policy document along with Death certificate, etc. If death occurs within 3 years of commencement of policy, then it is known as early claim. In such case additional documents may be required such as medical reports prior to death, FIR if accident is involved, attendance report from employer, etc.

Thus whenever one decides to buy a financial product to invest their funds one should remember that it is equally important to have a nominee(s) for the same. Since financial products are bought for a future goals for your heirs,nomination makes it easy for them to receive it incase of one’s sudden demise. A nomination can however be changed as and when the owner wants during his life. To claim after the demise of the owner the nominee needs to produce all the legal documents as decided and asked by the bank, company etc.

Nomination is the most simple form of Estate Planning. It is also the first step in your succession planning. Along with nominations, do make a will also. This will ensure that the wealth created by you during your lifetime is passed on without hassles & bad blood to your family members!
Source : fpguru

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