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Succession Planning

Nominee

Previously, while discussing myths of succession planning, we have learned that the nominee is considered as a trustee of an asset but may not be the beneficiary. In this section, we will learn and understand the importance of nominations in succession planning. 


Nomination

a) A nominee is the trustee of your assets, to whom the bank or any financial institution (mutual fund, insurance company and so on) will transfer your funds in case of your death. 


b) Often, individuals think that nominees are their legal heir. But actually that is not true. 


c) The owner of your assets will be your legal heir as per your Will, or if you have died intestate (i.e. in the absence of a Will) the transmission would be as per the India’s succession laws.

  • Nominee is only a trustee
  • Nominee may not be always the legal heir
  • Legal heir as per the Will

Beneficiary in case of different assets :

 

Financial assets

  • For most financial assets such as (mutual fund investments, bank accounts) and so on, a nominee is not compulsorily or necessarily the beneficiary, but only a trustee responsible for distributing the assets to your legal heirs as per the Will or Succession laws.
  • For some financial assets such as shares, the nominee can be the owner of the assets after your death and not the legal heirs. In 2010, the Bombay High Court passed the judgement on the 'Harsha Nitin Kokate' case that the nominee would inherit the shares and not the legal heirs.
  • In 2015, in 'Salgaonkar-Ghatalia' judgement the above mentioned was overruled by Justice Gautam Patel of the Bombay High Court and upheld the view that rights of the heirs supersede that of the nominee.
  • For E.P.F.(Employees Provident Fund) it is the nominee and not the person stated in the will, who inherits the amount. In fact, according to the rules, you cannot nominate any person other than a family member to your EPF account, unless you do not have a family at all.
  • To address this kind of ambiguity and to avoid the court battle, a way out is to appoint the intended beneficiaries only as nominee.

It is also advisable to write a clear Will, which shall automatically supersede everything else.

 

Insurance

  • There are different categories of nominees in case of insurance.
  • A category called 'beneficial nominee' wherein if you nominate someone as your beneficiary nominee, such nominee does not have to share insurance money with another legal heir. A policyholder can appoint multiple 'beneficial nominees' mentioning their share.
  • Another category 'collector nominee' is also there wherein the person mentioned will simply receive money from the insurance company and facilitate the transmission to legal heir which may happen based on succession laws.
  • A nominee has a right to claim money even at maturity in case an insured person survives the term of insurance but dies before claiming the maturity benefits. 

Property

  • The nominee may not be the ultimate beneficiary of the assets but may be required to pass them to the legal heirs. In cases where the nominee is not willing to pass the asset(s) to the legal heirs, can be taken to the court. The legal heirs then would need to back up their claims by producing a succession certificate or a probated/registered Will.
  • So, in order to transmit your assets to your loved ones smoothly, you should nominate your intended beneficiaries only as nominees to avoid confusion and also make a Will and state the name of your beneficiaries for every asset in a clear manner in your Will. In the absence of this, someone else can make a claim on your assets and your family might have to go through time consuming, exhaustive and costly legal procedures to get possession of assets which are rightfully theirs and may result in a lot of fighting at the time of distribution of assets.

Simply nominating a person at the time of creation of an asset does not necessarily make that person the beneficial owner of the asset after your death. 

 

 

Every asset is governed by different laws which might change over time. Therefore, succession planning needs to be undertaken carefully to ensure easy transfer of wealth.

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