Jagoinvestor

October 24, 2010

Who will be the nominee for your financial products? – Concept of nominee with example

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.

Nominee in Insurance , mutual funds

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 for 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, dude ! 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 the 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.

Watch this video to know what is nomination in Mutual Funds

#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 KokaThe’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.”

Source : Moneylife

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

If the subscriber dies and there is no nomination at the time of death, the balance in the account, if it is upto one lakh, will be paid by the Accounts Office to the legal heirs of the deceased on receipt of application in Form G supported with necessary documents without the production of succession certificate. If the balance is more than one lakh, the production of Succession certificate will be necessary. (source)

#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) . 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

Its 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 🙂 . Fix your nominee in all the financial products

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Vijayanarasimha N
Vijayanarasimha N
4 years ago

If nominee is nothing to do with!!!
Why don’t all authorities conditionally makes WILL compulsory are they playing with people’s life?

I lost my sister in road accident, she lost her life because of her husband mistake on bike,
if legally caretaker is husband and he is the reason for death how can he be provided the benefits of death though it is not intentional also when nominee is mother and she is alive,
How is it possible for old parents to challenge succession law in court.
Also the parents who lost there married daughter what should they do?

For 32 years parents take care and in just 3 years after marriage the daughter is lost what to tell the succession law in this case
Well we feel laws are just for name sake,????, that’s all

I kindly request all please make Registered WILL in all financial cases!!!!!!!!!!!!!!????

Fouziya
Fouziya
7 years ago

My father recently passed away he was getting pension from police department but he not nominated any one name to get pension after him,,will my mother get the pension??? Kindly reply soon

Raj Kumar
Raj Kumar
7 years ago

My father expired in may 2016 and there is not nominee in his bank account. The bank account pertains to father’s pension account. Now Bank Manager is asking for all the four children and my mother to present in bank at a time with certain documents. My two brothers are working in foreign. we all family members are not getting gather at a time. Bank Manager is asking certain hush money to release the amount.

Please advise..

Nitesh
Nitesh
7 years ago

Hi sir, we r 3 brothers & 2 sisters, recently in d month of Oct my father passed away, & he has an account in icici where some held & my father kept only my name as a nominee of DAT account, so now one of my elder brother forcing me to share d amount so assist me.
Thanks with regard.

Birendrajaiswal
Birendrajaiswal
7 years ago

Hello sir,
I m birendra Jaiswal..
My father has recently passed away. He had made nominee to my wife. Can she got that asset?

ajay
ajay
7 years ago

hi my name is ajay i am working as a assistan proffessor and i am orphange no relation to me can i put accidental insurance policy or any insurance policy .if i put means can i put a nominee who is another orphange but we are living as brothers and we two are living together if i put him as a nominee means after my death did my insurance will go to him

Raman
Raman
7 years ago

Hi Manish – My mother died leaving FDs as surety for her brother’s son loan. Nominee was her brother but I am the only legal heir to my mother. Before loan paid and closed my mother died.

Q: 1. Is nomination still valid or become void when FDs are submitted as collateral for the loan?
2. Any easiest way to find deposits held by my mother instead of just asking the bank mgr? thinking about RTI, Banking Ombudsmen…
3. If nominee already claimed the amount of my mother FDs, should the amount go to any trustee kind of acct or it can go to his personal accts itself?

Michael
Michael
7 years ago

Hi manish ,
My uncle has recently died in January 2016 , he has been speedster but not divorced for about 20 years . He had 6 FDs in a bank and all of them the nominee is my mom( his sister).
My uncles kids and his wife have filed in court claiming the FDs
What would you suggest would happen and the best action to be taken regarding this as all this 20 years none of the kids or the wife were in his life but after death they all want the piece of his pie .

Please reply asap as we have a court hearing soon

Thanks
Michael Fernandes

Bharath
Bharath
Reply to  Michael
7 years ago

Hi maneesh…..even I need answer for the same …

Bharath khidikkar

sagar
sagar
7 years ago

Hi manish
My father has died in a road accident and his account open in sbi bank my mother is nominee but my mother is neelam and he mention neela bank person says long process so plz u can help me out from this situation .

Rukhsar
Rukhsar
7 years ago

Sir meri sister ka death ho gaya Hai par meri sister ne nominee meri behan ki ladki ko banaya Hai lekin abhi meri mummy ko koi dekhne wala nahin toh agar meri mummy ko meri sister ke account se paisa Lena ho toh woh mummy kya let sakti Hai bank account se

inderjeet
inderjeet
7 years ago

Hi writing here FIR the first time. I want to have a insurance policy in which if I die then the amount or some share of amount can be provided to my cousin.
Is there any provision or way for this.

Manjit
Manjit
8 years ago

My parents had a flat at Mohali (pb) in joint name with ist nominee being my self and 2nd nominee being my elder brother.My parents & my elder brother have expired. Pl inform if the builder can transfer the flat in my name being the only surviving nominee. If not what process needs to be followed.

Archana
Archana
8 years ago

Dear Sir ,

My father died in 2014 . He has account in SBI without nominee . He also has 7 FD associated with this account , my mother name is also included in all the FDS. How can she avail that money as the account has no nominee.

This account

RAGHAVENDRAPRASAD
RAGHAVENDRAPRASAD
8 years ago

my father Rtc employee recently died .my father has got two marriages.first wife is my mother .she passed away before 13 years.my father mentioned pf nominee as my mother name.but after death of my mother my father pf nominee till date he has not change.now father and mother both are died. my fathers second wife argued with me total pf amount she asking 100%. for her but she has all proofs as wife of my father.
but we argued with her we are legal heirs of my mother .nominee is my mother .
who have full rights to receiving pf amount full first wife(died nominee) legal heirs or second wife ? who have rights ?

Who
Who
Reply to  RAGHAVENDRAPRASAD
7 years ago

@Jagoinvestor: Thank you Manish for the fun way you have shed bright light on this topic. (It was among the first link in Google search – and provided me the information I wanted.

@Raghvendra

Disclaimer: I DO NOT know law.

You may want to clarify with lawyer if the Time of PF declaration has an impact on first-wife /or legal heirs’ rights.

IF first wife was alive (example: divorced), and father died after marrying second wife — then first wife would have received all money, as Nominee. (as the article so straightforwardly and wonderfully describes).

Then, as per law, (Hindu Succession Act or something!) – legal heirs (you and your siblings) may lay claim to the money held by the Nominee. (since no Will, as I learned from the article.)

Nomination was declared when first wife was alive .. and BEFORE the date your father was married to second wife.

Maybe exploring this line of reasoning may bring you more benefits. ..

Ashish
Ashish
8 years ago

Hi Manish,

Revisited this article after about a couple of years. Reason being change in nominee rules in 2015. This article(http://www.livemint.com/Money/bYKOp9A5yMl9WYyEvAdq2L/New-rules-benefit-insurance-nominees.html) in LiveMint says “But the new rules effected by the Insurance Laws (Amendment) Act, 2015, clearly make nominees, immediate family members such as spouse, parents and children, the beneficiary so that the insurance money can go to the intended recipient. In fact, the new rules have another nominee-friendly feature that you must know in detail, but first let’s start with understanding what a beneficial nominee means. ”

Please enlighten us if this article of yours needs change or still valid.

Regarsd,
Ashish

Prasad
Prasad
8 years ago

Hi Sir,
If the LIC nominee is minor(child of the insurer) and the insurer is dead while nominee is minor, in that case to whom that money is surrendered? Who is legal heir of that amount if there is no will before death?

vishal
vishal
8 years ago

Dear Sir,

my name is vishal. My father was a govt. employee in BSNL as Telephone Mech. I was living with father when i was 5. But the relation with my father of my mother was not good. She was not with us form last 19 years. but suddenly now my father died. and my father nominated my mother as first nominee and me as second in his service book of bsnl. my mother is claiming all the money and pension. my mother do not believe anyone and sir please advice that what should i do. can i get my share form it.

Satish
Satish
8 years ago

Hi Sir,

Recently my brother-in-law demised due to accident. In one of his insurance policy, he nominated his mother.
In this case is my sister eligible to claim the insurance benefit from policy. If yes then what would be the approach. My brother-in-law’s mother is still alive.

Thanks & Regards

PLV Prasad
PLV Prasad
8 years ago

Hi Sir, my paternal aunt passed away without nominee in her bank account and she is unmarried. How to claim money ? Please let me know. Thanks Prasad

ATRC
ATRC
8 years ago

Hi Manish,

Thanks for very informative article.

Few queries related to PPF Death Claim :

1. There are 3 nominees and one of the nominee died. Will the money be divided between the the remaining 2 nominees only or legal heirs of the dead nominee will also come into picture?

2. If legal heirs of the dead nominee will get the share then what is the process for defining the legal heirs? Do we need to succession certificate for the dead nominee in that case ?

3. If a nominee wants to forgo his rights in claim amount then what is the process for that ?