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What is nomination? And who can be nominee?

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Nomination is a facility where the account holder or investor appoints a person who can claim the proceeds of deposits, investments, sum assured etc. post demise of the account holder/investor/insured. Where it makes the claim process easy for the nominee, financial institution's liability also gets duly discharged after making payment to the nominee.

Sounds simple? That's why you don't pay much heed on appointing a nominee with a proper thought. Now let me give you a shock here -

Nominee is not the legal owner of the proceeds. He'll just act as a trustee and custodian of those assets/deposits and has to transfer all to the legal owner/heir. In other words, nominee just gets a right to receive and not right to own.

What if there's no nomination?

Make your family members aware about the court procedures. As if there's no nomination mentioned in the investments than they have to arrange for death certificate, probate, succession certificate, affidavits, no objection certificates …and so many such documents as demanded by the bank, mutual fund houses etc. So rather than pushing your family members or legal heirs in such sort of legal hassles, I think giving nomination is easy.

How WILL is related to nomination?

Nomination is just the right to receive the funds after the demise of investor or account holder, but it does not make the nominee the owner of the funds. Owner will be decided by the WILL written by investor or if WILL is not there than the amount /proceeds will be distributed as per the Succession laws applicable on the investor (Hindu Succession act'1956, Indian succession act'1954, Mohmmedans law) Thus even if you have appointed a nominee in your account, he's not authorised to use it unless he's one of the legal heir as per the WILL or succession laws. Lets understand this by example.

Mr H has bought one life insurance policy before his marriage for a Sum assured of Rs 1 crore. He's appointed his mother as a nominee in the policy. After his demise, though the policy proceeds will be paid completely to his mother, but his mother will not be the complete owner of the insurance proceeds. The proceeds will be divided in the ratio as mentioned in the WILL or if there's no WILL then as per succession laws.

Now, lets assume that mother predecease Mr H. Can you figure out the hardships that the family would have to face to claim the insurance proceeds?

Or if the nominee was the brother and after Mr H's demise, he refuses to part with the insurance proceeds, which calls for long court cases.

I believe no one of us wants to put our family in such situation.

That doesn't mean that appointing a nominee is useless activity. The solution is writing a proper WILL, along with nominating the right persons in your financial instruments.

Happy Investing!!

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