NOMINATION & ITS IMPORTANCE – Adv.Suyog Chandulal Shah

NOMINATION & ITS IMPORTANCE – Adv.Suyog Chandulal Shah

Ø    IMPORTANCE OF NOMINATION

Friends this is an introductory guide to help you understand the importance of making a nomination in your life to safeguard the interest of your loved ones. I have tried my best to give you some basic information to help you understand the Nomination process and its benefits. A brief explanation on several technical terms used is also provided to help you. Making a Nomination and the purpose of having Nomination is to ensure that your loved ones are protected financially in case anything happens to you. It is then important that your loved ones can access the funds quickly. If you do not make a nomination in your Bank accounts, Mutual Funds, Insurance policy or any other Financial Investment [ Moveable property ] in that case the Financial Institute or Insurance Company is not obligated to release the policy moneys until your loved ones obtain a Grant of Probate or Letter of Administration or Distribution Order, which may take several years. However, if a nomination is made, the policy moneys can be disbursed much faster without the need to obtain the Grant of Probate or Letter of Administration or Distribution Order.

Ø    WHO IS A NOMINEE?

A nominee is a person in whose name assets, securities and other investments are transferred for the purpose of transaction and distribution. However, the actual ownership of the asset lies with the owner, who is also the nominator. Nominees are appointed for property, insurance, mutual funds, stocks, bank deposit accounts and safe deposit accounts to name a few.

Ø    WHY IS A NOMINEE APPOINTED ?

The purpose of appointing a nominee is to have someone who is trustworthy and responsible to handle the nominator’s assets after his death.

Ø    WHAT IS THE ROLE OF A NOMINEE ?

According to me, ‘nomination’ means that the asset/property will be transferred to the nominee after the death of the nominator. However, nomination means a ‘right to receive’ the asset and ‘not to own it’. A nominee is responsible to manage the asset as per the nominator’s wishes after his death. But a nominee cannot sell the property unless he is a legal heir.

Ø    WHAT IS THE BENEFIT OF NOMINATION ?

The appointment of a nominee leads to less complications at the time of claim and distribution of the asset in the event of the death of the owner. The legal heir can also be made the nominee in many cases to avoid tedious procedures.

Ø    HOW DO I MAKE A NOMINATION ?

If you are 18 years old and above, you can nominate an individual or individuals to receive the policy moneys in the event of your demise. Nomination can usually be done at the time of application of the life insurance policy or any other time, when necessary. You can nominate more than one nominee, and state the proportion to which each nominee would be entitled.

In case of most investments, the owner will be required to fill out a form during application with the particulars of the nominee and sign wherever required. Witnesses may also be required, depending on the specification.

Ø    CAN A MINOR (BELOW THE AGE OF 18) BECOME A NOMINEE ?

In case of making a minor a nominee, the owner will also need to appoint another person, above the age of 18, who can legally receive the proceeds in the event of the death of the owner/holder.

Ø    CAN THERE BE MULTIPLE NOMINEES ?

One can appoint multiple nominees for receipt of the proceeds and, in some cases, can also specify the desired share to be given to each nominee.

Ø    CAN A NOMINEE BE CHANGED ONCE APPOINTED ?

Yes. A nominee can be changed time and again. The owner would have to contact the company or bank with the request and follow the necessary procedures required by them.

Ø    WHO IS A BENEFICIARY –

Beneficiary is a person who is entitled to receive for his own benefit (beneficially) the policy moneys under an insurance policy, and not merely as an executor or trustee holding the policy moneys for others.

Ø    WHO IS AN EXECUTOR –

Executor is a person who has been appointed in a will to administer a deceased’s estate, in accordance with the deceased’s will, and issued a grant of probate by the court to do so. For purposes of the Insurance Act 1996, a reference to an “executor” is a reference to a nominee of a non-trust policy who receives policy moneys not as a beneficiary but as someone who must pass the policy moneys to the deceased policy owner’s estate for distribution.

Ø    WHAT IS PROBATE –

Probate is a formal document issued by the court authorising the executor named by a deceased person in his will to administer his estate in accordance to the deceased’s will.

Ø    WHAT IS LETTER OF ADMINISTRATION –

Letter of Administration is a formal document issued by the court to a person to administer the estate of a deceased who did not make a will.

Ø    IMPORTANCE OF NOMINATION IN BANK'S DEPOSIT ACCOUNTS

It is a facility issued by all the banks to their customers in all the accounts opened by them. Nomination means the facility to chose or declare to the bank that in the event of his/her death who is going to be the beneficiary of the death claim i.e, the entire amount lying in his any deposit accounts such as Saving Bank account, Current account (only in case where the constitution of the firm is proprietorship that is only one person running the firm and sharing 100 % profit earned or loss incurred from the business), fixed deposits or recurring deposit and last but not the least the safe deposit lockers hired by a customer. The heads can further be elaborated as below: 

1. NOMINATION IN CASE OF A SAVINGS ACCOUNT :  

Nomination is intended to be made in case of the savings account while filling up the Account Opening Form. There is one form attached with the account opening forms mostly in all the banks and if it is not there, a separate form needs to be filled by the customer and attach the same with the a/c opening form. Earlier it was not essential for everyone to fill up the nomination form but in this regard a circular of Reserve Bank Of India(RBI)has been issued dated April 5, 2007 wherein banks were advised to give wide publicity and provide guidance to deposit account holders on the benefits of nomination facility and the survivorship clause. It is of great benefit to the customers since it reduces many big hassles while settlement of the death claims that is customers deposits with the bank in the event of the death of the customer like asking for the court notice along with the declaration from the local municipal councillor and letter from the court that the person appearing before the bank and posing himself as the legal heir of the deceased customer is the real one and the proceeds of the account may therefore be handed over to them after proper verification. In case of a joint account, the customer is not insisted to give the nomination as the amount can be settled in the name of his co holder in case of the death of one of the holders.

However, if the customer is unwilling to give the nomination after all efforts or if there is not a single alive person in his family or if he/she is a damsel [a young unmarried woman], the bankers might open his account after taking in writing that he doesn't want to nominate any one for any of his accounts.

2. NOMINATION IN CASE OF A FIXED DEPOSITS : 

It is term deposit which the bank needs to pay to the customer after the end of the term chosen by the customer with the addition of fixed rate of return committed by the bank to the customer while filling up the Term Deposit Form.

  

In a case which came up before the Allahabad High Court, the Honourable Court has observed that "it will be most appropriate that the Reserve Bank of India issues guidelines to the effect that no Savings Account or Fixed Deposit in single name be accepted unless name of the nominee is given by the depositors. It will go a long way to serve the purpose of the innocent widows and children, who are dragged on long drawn proceedings in the Court for claiming the amount, which lawfully belongs to them".

3. NOMINATION IN CASE OF A RECURRING DEPOSITS : 

Nature of fixed deposits and the recurring deposits are same as both are liabilities for the bank and have to be paid back after the committed time at the committed rate of interest. The only difference is that in Fixed deposits, the amount is deposited by the customer at one go while in case of the later, the amount is deposited on equal interval of time that is monthly, quarterly, half yearly etc. Nomination in case of these accounts is again a must and is helpful for both the parties that is the bank and the claimant.

4. SAFE DEPOSIT LOCKERS :

It is a facility extended by the bank to their customers depending on the availability, where a locker agreement is signed on the stamp paper in the language vetted by the legal department of the bank. The above two are in the relationship of a lesser and a lessee and customers are expected to keep only acceptable items such as jewelleries, property papers or any other important documents pertaining to them and not any unacceptable items such as bombs which could further create panic for the bank and the other customers walking into the branch.

5. IMPORTANCE OF NOMINATION IN BANK ACCOUNTS

According to the Reserve Bank of India (RBI) report, around Rs 1,100 crore of unclaimed money is lying with Indian banks. The report further stated that a major portion of this unclaimed money belongs to Hindu Undivided Family and individual accounts because the account holders have died. In such cases the main reason for unclaimed money lying with bank is that the account holders have not nominated anyone in their accounts. This way not only legal heirs are deprived of the money also banks are facing problem in managing these unclaimed funds. To solve this double edged problem, the government of India had amended the banking laws to include nomination facilities in respect of all bank accounts. But, still many of us either are not aware of this facility especially people who are uneducated or living in rural areas, or do not want to face the fact that unforeseen events can happen to us. Filing nomination is not difficult. 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. If you have not done nomination in your accounts you can file a request for nomination for both – a single account or a joint account. In case of your death or the death of any of the joint accountholders the nominated person can receive the amount lying in the account. The form can be taken from bank and is applicable for all types of deposit accounts - savings account, recurring deposit account, fixed deposit account or even a current account.

In case you want to cancel the nomination or change the nominee at any point in the future, you can do so by simply submitting another Form. In case of change in nomination or cancellation you must obtain a written acknowledgement of any request made to the bank. The banks normally give acknowledgement in a tear-off of the form being submitted. If changes and variations in nomination are made frequently then you must keep photocopies of the forms to avoid any dispute in future and also for a ready reference. However banks make note of such submission of nomination forms or variations/ cancellations thereof in their records. At the time of deletion or addition to the original bank account, always ensure that the nomination form is also submitted with the bank covering all the account holders at the relevant times. Nomination facility is available for individuals and other entities like partnership firms, limited companies and trusts, etc. This facility is also available to accounts operated by proprietors in respect of their business concerns, including current accounts.

In case of minor account holders, a nomination can be made by a person who is lawfully entitled to act on behalf of the minor. Whereas, if the nominee is a minor, in such case the accountholder will have to appoint a person to receive the money during the time the nominee stays a minor. When nominee turns a major, he/she can claim the money from the bank directly.

6.JOINT ACCOUNTS

In case of joint accounts if the joint account holder dies without making any nomination, in such case the remaining accountholder/s can still make a valid nomination in respect of the bank account.

In case of one account holder, the bank will remove the name of the deceased from the account and the remaining accountholder/s remains the account holder/s. In case of only one account holder surviving, he becomes the sole accountholder of the account.

7.FIXED DEPOSITS

In fixed deposits also there is nomination facility. But in this if fixed deposit is held jointly, all the joint accountholders have to give nomination. A nomination request not signed by all accountholders will not be a valid request.

The nomination will remain active and alive as long as the deposit account is renewed also it automatically gets renewed on renewal of the deposit from time to time.

8. FOR NOMINEES

As nominee becomes authorized accountholder after the death of accountholder therefore he is entitled to give a valid discharge for payment of the money due to the bank. The banks only consider registered nominees and not the legal heirs.

The nominees have to provide valid proof of death of the accountholder together with the claim in the prescribed form. The bank is also supposed to send a letter to the nominee in case no claim is filed within three months of the notice of death of accountholder being given to the branch.

The bank allows the nominee to foreclose the fixed deposit if he/she submit relevant document like death certificate/ claim form etc. But banks cannot grant any loan against such fixed deposit held by the deceased.

In case the nominee is other than legal heirs, then they can lodge their claim for the money of the deceased against the nominee and not against the bank, once the bank has paid the money to the nominee as per the terms of the nomination filed with it.

Legal heirs who obtain any order from the court then they can restrain bank from paying the money to the nominee.

9. HOW IMPORTANT TO HAVE A NOMINEE WHEN MAKING A MUTUAL FUND INVESTMENT

Nomination is very much important and you should ensure that you have nominated a person who will be entrusted with your funds in the case of your death. If you have not made any nomination, in the event of your death, it will be cumbersome for your legal heirs to take control of your investments. By having a nominee, the amount in your mutual investment gets transferred directly to the nominee in the event of your death and the process is fairly simple with nominee to prove his identity. You can change the nominee as many times as you wish to by filling up the nomination form and changing it from your mother to wife.

Friends I have tried my best to give you the information on the above topic in detail and covering all the aspects in respect of Nomination process.

We would like to assist you better for any kind of help and Legal Assistance Kindly contact:-

Adv.Suyog Chandulal Shah

Adv.Suyog Shah & Associates,
Email :- advsuyogshah@gmail.com,

Mobile No.9850827178

Office No.0253-2313178