Last week, we discussed about the important documents you must have when you claim your loved one’s assets after his/her death. This week, let’s examine the role of a nominee in your estate planning.  

We often hear people stating that it is a must to mention the name of a nominee in your investments. While this is an important step when you make your investments, remember that this does not guarantee that the nominee you name will automatically inherit the asset after your death. Surprised? Remember that a nominee is essentially a trustee, which means he holds the asset only till the time the court passes an order of the actual legal heir. Thereafter, the legal heir named in the Will, or those determined by succession laws will inherit the asset.

Let’s briefly look at the position of the nominee in the case of different assets:

Insurance: On the death of the insured, the insurance company is supposed to give the amount to the nominee mentioned in the policy. The nominee will then distribute the amount to the legal heirs, according to the Will of the deceased. If there is no Will present, then succession laws will be applicable, and the amount will be distributed as per this.

Share in co-operative housing society: Similar to the case of insurance, share in the housing society will only be temporarily transferred to the nominee who has been named by the deceased. The nominee has to then transfer the shares to the legal heirs as named by the Court, or as mentioned in the Will. Further, the Maharashtra Cooperative Societies Act states that the transfer made to the nominee will not result in vesting of the flat with him. In case of a self acquired property, the Will becomes the deciding factor. If there is no Will, then the property will be treated as an inherited property. In the case of an inherited property, the immediate family members of the deceased person will get an equal share of the property. If there is joint ownership of an acquired property, then the surviving owner will be the sole owner.

Shares in a company: The treatment with respect to shares in a company is different compared to other forms of investments. Here, the Companies Act is applicable, and the nominee named in the demat account will legally inherit the shares after the death of the person. In fact, in the case of shares, the nominee will be the owner even if some other person is named in the Will.

Employee Provident Fund: Similar to shares, the amount in the EPF account of the deceased person will be inherited by the nominee named therein. The nominee will again supersede the person named in the Will. Nomination can also be done in favour of multiple family members, mentioning the share each nominee will inherit.

Other assets: Apart from the above, nominees of other assets like mutual funds, public provident fund and bank accounts (savings bank, fixed deposits) will also not become automatic owners of the asset. The Banking Regulation Act specifies that the amount in the account of the deceased should be distributed according to the applicable succession laws.

As you can see, simply naming a person as a nominee will not make him the owner of the assets, except in the case of equity shares and EPF monies. Therefore, we recommend you to immediately make a Will and get it registered to avoid legal problems among the family members after death.

While the above is an original article written by us, we are inspired by related articles on Economic Times, Business Standard and LawyersClubIndia.


Smitha Hari
GettingYouRich.com