Now a days people are invested their savings in to Mutual Funds and insurance policy, rather than to invest in Bank Fixed Deposit or Post office, as the rate of interest is reducing, day by day.
Nobody is certain about their life. To secure and safe your fund it is advisable to have a nominee of your investment.
Will your nominee get the money on your death?
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?
Yes, this is exactly what you think if you are not aware of the legal aspects.
We assume a lot of things which sounds like they are obvious, but are not true from the legal point of view.
Today, we concentrate on nominations in financial products.
For whom we are earning? For whom we are 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 person from your list of beneficiaries! So you think you will nominate person A in your insurance policy, and when you are dead and gone, all the money goes to person A and he/she becomes the sole owner? No you are wrong, dude. It does not work that way.
Let us see how it actually does!
What is Nominee?
According to law, a nominee is a trustee, not the owner of the assets. In other words, he is only a care taker of your assets. The nominee will only hold money/assets as a trustee and will be legally bound to transfer it to 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, supposed to hold the proceeds in trust and the legal heir can claim the money.
A legal heir will be one whose name is mention in 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.
Take an example, if Mr. A during his life time execute a WILL and in WILL, he mentions that his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets. Though the name of other person is mentioned in nominee, he has hand over the assets ti the wife and children of Mr. A.
It is advisable and essential for everyone needs to execute a WILL.
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 the nominee exist at all?
It is 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 has not nominated any one, your legal heirs will have go through the process of court and producing all kind of certificates like, death certificate, proof of relation etc., not to mention that the whole process is really cumbersome and time taking. So, to simplify, if a nominee exists, these hassles do not happen, since the company is bound to transfer all your money or assets to the nominee. Then company goes out of screen & then, it is between nominee and legal hires.
Nomination in Saving/Current/FD/RD Account in Bank:
Now a days Banks are also ask for name of Nominee, when you open any Savings, Current or Fixed Deposit Account. 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. Suppose, till date if you have not done any nomination, you should request Form No DA – 1, from your bank which is used to assign a nominee in future. In the same way, if you want to change the name of nominee, you need to fill up Form No DA-2.
Nomination in Public Provident Fund (PPF):
If you have Rs. 10lakh in your Public Provident Fund account and you have not nominated any one for your PPF account, your legal heirs will get maximum of Rs. 1 lakh only. Therefore it is a must that there should be nominee in your PPF account. You can nominate one or more persons as nominee in your PPF account. Form F can be used to change or cancel a nomination for PPF. Please note that you cannot nominate any one if you open an account in the name of minor.
Nomination in Life Insurance:
As per LIC website, nomination is a right conferred on the policy 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 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.
Please remember that, 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 you dependents to get the claim.
Nomination in Mutual Funds:
In case of mutual funds, you can nominate up to three persons, who can be registered at the time of purchasing the units. While filling in the application form, there is provision to fill in the nomination details.
Even 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.