When you opened a bank account, a demat account or made some investment, you would have come across a column on nomination. You may have skipped the column because you didn't have a photograph, necessary documents or the patience to read through the entire form before parking your money in that investment.
But what many don't realise is that nomination is important. A nomination gives the nominee — usually a family member — a rightful claim to your hard earned money, especially at the time when they have a pressing liquidity need. Also, not every investment works like a term insurance, which ensures that your family gets the benefit after your life time.
If you have not filled up the nomination form, don't fret. It is never too late to go back to the bank, the company or the AMC to fill in those details. They have a separate form for nomination, which can be filled up even after you have made the investment.
The Importance Of A Nominee
Every bank account holder, investor or owner of any immovable asset should have a nominee. It is not necessary that the nominee of the bank account, asset or investment has to be the final beneficiary. The nominee will be the custodian of the account after the death of the actual investor/ account holder.
It is not the bank or the AMC's prerogative to ensure every account holder or investor has a nominee. The onus is on the investor to ensure hassle-free transfer of assets after his/her death
The Process
The nomination process is very simple. One has to just fill up a form to assign nominees to your bank account/investment.
Usually, there is a column on nomination in an application form for opening a bank account or starting an investment. If you did not fill up the details in the application form, you can still walk up to the bank branch or the company and do the needful.
However, the process is a tad different in case of properties.
Typically, a house is in a cooperative housing society and is owned by virtue of owning shares. These shares can be transferred to the nominee and the ratio of the share ownership has to be mentioned in the share certificate. But, again, this nominee is a mere custodian of the property and not the owner unless stated in the will.
Choosing A Nominee
It is best to choose a major — your grown-up child, spouse or dependent parents — as nominee. Married couples usually choose their spouse as the nominee; some nominate their spouse and children. The assumption here is the child usually lives longer than the spouse or the investor's parents.
There are situations where a couple separates or the investor's spouse may die unexpectedly. In such cases, the investor has the flexibility to change the nominee. Even a simple change of mind can be a reason for changing the nominee.
Hence, there is no sacrosanct rule that the nominee cannot be changed. Therefore, even if you are uncertain, just fill the nominee details. It can always be changed later if you want.
But, if your nominee is a minor, you have to choose a trustworthy guardian to ensure there is a credible custodian for your assets till your child becomes legally eligible to inherit your wealth.
Nominee And Succession Right
Does the nominee have succession rights? The answer lies in the nature of investment.
If the investment is in the form of a company bond or equity, the nominee would be the beneficiary of such investments. As per the Companies Act, a nomination always supersedes the will. For instance, if you nominate your daughter as the nominee for the shares of a particular company held by you, your daughter will be the final beneficiary of the investment after your death. It does not matter even if the will states your son will be the beneficiary of all your investments. However, for all investments falling outside the purview of the Companies Act, such as real estate, bank accounts or mutual funds, the will supersedes the nomination. Hence, ensure the nominee(s) of your various investments and the beneficiary or beneficiaries in the will are the same to avoid confusion or any family feud after your life time.
In short, for all investments except company bonds and equity, nomination does not provide ownership of your assets. The nominee will only be the custodian of the asset till it is given to its beneficiary.
To ensure the nominee becomes the final beneficiary, you have to ensure there is a will to bequeath your wealth in a hassle-free manner.
'Either or Survivor' Clause
You can opt for the either/or survival clause, which makes your spouse the natural owner of your investments in case of any unexpected turn of events. This is a viable option especially in case of joint bank accounts or investments. A joint investment/bank account needs signature of both the parties. If you opt for an 'either or survivor' mode of holding, then transactions can be carried out by either of the individuals. Secondly, if one of the investors/ account holders dies, the transaction is not stopped. It can be carried out by the survivor.
In case of just a joint holding, the survivor (living individual) has to submit the death certificate of the deceased along with the application to the bank/asset management company. Thus, the 'either or survivor' clause is legally a sound option. You have the option of joint investments as well, but the survivor clause is a good option.
