In my earlier articles, I had discussed how “Hindu Succession Law applies when someone dies without a valid will?” and “How you can prepare a simple will?”, now this article is an effort to give some clarity on positioning of nominee in your investments. Generally investors believe once they have done nomination, their duty is over and after their death nominee will get the money and he can utilize it easily. This is a wrong belief.
Nominee is Just Trustee: According to law, nominee is not owner of your investments. He is only trustee of your investments. His job is to accept your assets in case of your death and distribute it to your legal heirs as per your will or if there is no will then according to succession law applicable to you. So it is primary responsibility of nominee to accept assets of the deceased person and transfer it to correct beneficiaries. By mere nomination one does not become owner of the assets.
Then why should one appoint Nominee? : A simple question that comes in mind is, if nominee is not owner of the assets then why to appoint nominee? The answer is, to make the process of transfer of assets to beneficiaries of deceased simple and clear. If there is no nominee then legal heirs have to give all kind of proofs like proof of relationship, will if any and lot of other things to concerned authorities for getting the money out from the system. But once if nominee is there then he will take the money out and distribute it between legal heirs as per will or if there is no will as per applicable succession law.
However, there are some conflicting laws to the principle that nominee is only trustee. Let us see what happens in different type of Investments:
Nominee in Shares & Debentures: In case of shares and debentures of company, nominee gets all rights and powers after death of nominating person(s). As per section 109A of The Companies Act and 9.11 of The Depositories Act, it is mandatory to appoint nominee for shares and debentures of company and it clearly prescribes that when in case of share and debentures of the company if the share holder dies then nominee gets all the rights in relation to those shares and debentures.
Also in a verdict, in the case of Harsha Nitin Kokate vs The Saraswat co-op Bank Ltd. In Bombay High Court, it was made clear that in the case of company shares and debentures, the provisions of Companies Act and The Depositories Act 1996 prevails over succession laws and therefore it is the nominee and not legal heir who will inherit the shares.
Employees Provident Fund: In case of employees provident fund also nominee is the person who will inherit the fund and not legal heirs. As per rules, in EPF account one has to appoint his family member as nominee unless he has no family at all. Also once he acquires family the old nomination is invalid and has to make new nomination. In EPF account one can have more than one nomination and assign individual shares to nominee.
Bank Accounts,Mutual Funds,Other Investments & Insurance Policies: In bank accounts, mutual fund and other investments nominee is merely a trustee and not owner of the money. His responsibility is to get the money in case of death of holder and transfer it to legal heirs.
Similarly, in case of insurance also nominee’s position is that of a trustee and not the owner of money. So in case of death of a policy holder he has to receive the money and transfer it to legal heirs.
Conclusion :From above discussion one thing is very clear that status of nominee is that of trustee and not owner of money after death of nominating person(s). There are two exceptions to this rule that is in case of shares and debenture of company and EPF account. So, mere nomination doesn’t ensure that your assets will pass to legal heirs.
How to ensure safe transfer of assets to Legal Heirs? : One point which everyone should note is that in India different laws have different interpretations in this regard and at number of places nomination laws are conflicting with succession laws. So I would recommend all of you to do two tasks so as to ensure safe transfer of your investments to your legal heirs as per your wish without any legal issues.
- First and foremost, I would recommend everyone to make your will. Your will should be as far as possible in simple words and mention clear distribution of your assets.
- Second, to avoid any conflicts, your nomination and will should speak the same language and give same direction for different assets. I mean, for example if in your will you have assigned your life insurance policy to your son than you should also make him nominee in that particular policy. If this is done properly there is very less chances of any conflict and your assets will be transferred safely to your legal heirs as per your wish.