A person in his entire life makes many important financial decisions. This includes investments in mutual funds, insurance policies, investment in banks, shares, provident fund and others. Financial assets contribute to the financial stability of a person. It is an integral part of financial planning. Often in the process of these type of investments, people forget to appoint a nominee for their financial assets. Missing for nomination is something terrible especially in years down the line.
Though while investing, it may seem unimportant for an investor to appoint a nominee. However, down the line, it is very important for the financial security of your family. A simple paper pen work can save you and your family later from several unfortunate incidents that can cause trouble.
What is a nomination?
Life is short and unpredictable. Unfortunate or unforeseen incidents of your life can take you away from your close ones suddenly. There comes the danger of financial insecurity of your loved ones. Often in the event of an untimely situation which may fall on the investor, it has been seen that the kin of the investor runs here and there to claim the assets. Also, many times, the assets can remain unclaimed for a longer time period. When you go for the process of financial assets nomination, your nominee takes its care in your absence. A nominee is authorized to become the custodian of the assets after the demise of the investor.
Why is the important of nomination?
In the absence of a nominee, the financial organization is not obligated to hand over assets to your family until they receive legal and official permission to do so. The institution will demand a list of documents which can take a good enough time to obtain. The entire process of handing over financial assets to the family members after the death of the investor becomes very long. It involves a lot of hassles and inconvenience. This can be very frustrating for the family members, especially when they have lost their close one suddenly. Financial stability of the family will be jeopardized, and a lot of time will involve claiming the ownership of the financial assets. A nominee of the assets during investment planning can safeguard your family at times of crisis and sorrow.
What does a nominee do?
A nominee takes charge of the funds that you leave behind and enables a quick disbursement of assets to the legal and rightful heir. It is often assumed that nominee is the beneficiary of the investor. This is not true. The legal heirs to the financial asset are supposed to be mentioned in the Will. In the absence of any Will, the legal heirs of the financial asset are decided according to the seniority of the succession. The Will is supposed to specify about who receives the assets, the nominee is merely the trustee of the assets. In exceptional cases, the nominee and the heir are actually the same people. You can appoint a nominee for your bank accounts, fixed deposits, PPF, demat account or other assets. A nominee is usually a family member, friend or any other person whom you trust.
Merits and demerits of nomination
A nominee in financial assets does not mean that he/she is the owner of the assets. The nominee is only the trustee who can disburse the money required to the members of the deceased investor. In times of financial crisis, a nominee can be very helpful to channelize all the required money as and when required. Also, the financial assets do not remain unclaimed. Thus, make the family members free from the unnecessary trouble owing to the ownership of the financial assets. They are free from the legal hassles that they had to face in the absence of a nominee for their assets.
The only demerit of a financial assets nomination is with respect to the equity shares. In equity shares, the nominee can become the owner of the investment. Also, sometimes complications in financial asset division may arise. Especially, if the nominee is also a successive heir of the late investor. But overall, the process of nomination saves a family during unfortunate incidents and helps them to retain their financial stability.
Difference between financial and physical assets
Physical assets are tangible and you can see it or touch it with an identifiable presence. Examples of physical assets include buildings, land, machinery, gold silver, vehicles equipment or any form of tangible economic resource. The concept of nomination is not there is general in case of physical assets. The succession of the property usually goes as per the Will or the succession law in the absence of the Will. But if you own a share or a unit in a housing cooperative society, you may have to appoint a nominee for co-operative housing activities. Even if you appoint the nominee, he or she will be a custodian and the actual ownership of the asset will be given to the heir of the family.
General rules for nomination
Bank accounts: A nominee for a bank account is usually a custodian of the asset. On the death of the bank account holder, if there is a nominee, the bank will pass on the deposits to the nominee. If legal heirs are different from that of the nominee, they can claim their share from the nominee. The nominee cannot claim money or deposits lying on the bank on the death of the account holder. In case of joint accounts, the second account holder operates the account and post the second account holder’s death, the nominee gets the deposit amount.
1. Life insurance nomination
A nominee in a life insurance policy can only act as the trustee of the proceeds. In the case of life insurance, the nominee does not inherit the amount. They just receive it as a trustee of legal heirs. Firstly, the insurance company passed the proceeds to the nominee. Afterward, the nominee has to distribute it to the legal heirs as per the WILL.
2. Nomination in demat for shares holdings
When it comes to shares, the nominee will be the legal beneficiary of the shares. Therefore, be careful while selecting the nominee for this account. According to the Company’s Act, the nominee has the power to supersede the Will. It overrules the Will and the nominee will inherit the shares. If you have a joint account, the second account holder will be the sole owner of the shares. Furthermore, post their death the nominee or legal heir will inherit the shares.
3. Nomination in PPF account
You can always nominate one or more people as the nominee in PPF. Form F can also change or cancel a nomination for PPF. If you open the account for a minor, there is no provision for appointing anyone.
4. Nominations with mutual funds schemes holding
While investing in mutual funds, you can make the nomination by writing all the relevant details in the application form itself. Later you can always change the nominee by submitting the relevant form for that. A minor can also be a nominee if the guardian is specified in the form. It is important for you to note that the nomination is folio specific. So one can make further investments in the same folio, provided that the old nomination is applicable to new units.
So, if you are looking for the nominee in investments or for your financial assets it is always better to take the help of the right financial planner. Go for experienced ones. Look for financial advisors with proper skill in the domain. They will help you in this nomination process. The nomination is an important part of financial planning. This would secure the future of your loved ones even in your absence.