Taking Cover. Choosing a nominee for your assets

Every time we invest in a financial asset, we spend considerable time evaluating every risk and return associated with it. But, there’s one more thing we must do every time we make an investment — choose a nominee. A nominee is a person to whom your assets will be transferred, after you pass away. If you don’t nominate, your assets can be accessed by your family only after they provide evidence of being your legal heirs. In most cases, this will require them to submit a court-obtained succession certificate apart from other documents, making it cumbersome .

As far as a savings account and a deposit (both single and joint holding) go, you can choose only one nominee for each of them. For a locker, though, if it’s held jointly, you can choose two. After you pass away, the nominee for your accounts (savings and deposits) and lockers will have to submit to the bank the original death certificate of the accountholder; and his/her identity and address proof.

After the bank is satisfied, it will close the original bank accounts and transfer the money to the nominee’s account or pays it off to him/her. Likewise, the nominee is given access to the lockers too.

If you have not specified any nominee, then your family members will have to submit a succession certificate, document of indemnity and a letter of disclaimer signed by the other legal heirs (who are not staking claim) to gain access to your bank assets.

As for mutual funds, how you nominate depends on whether you are investing directly with a fund house or are doing it indirectly through a demat account with a depository participant (brokers and banks).

Jimmy Patel, CEO Quantum AMC, explains that nomination is always at the folio level in case of direct investment in mutual funds. If the original folio holder (single) passes away, all the units in that folio are transferred to a folio in the nominee’s name. You can choose up to three nominees and specify their respective percentage shares.

If the exact division has not been specified, then each nominee gets an equal share.

On the other hand, if the investment is made through a demat account (single holder), all your holdings in that account will be transferred to the nominee chosen by you for that account. This will also include your stock investments made through that demat account. For joint accounts in all these cases, the investments will pass on to the other holder(s).

Since you can choose only one nominee for a demat account, you can consider operating more than one account if you want to have more than one nominee for your stock and mutual fund investments.

Once the original folio holder passes away, his/her nominee will have to approach the fund house with the folio holder’s death certificate and his KYC certification and PAN card details. An indemnification form will also be needed, if the amount exceeds ₹2 lakh.

The transfer is normally completed within 10-30 days if all documents are in place. Where the mutual fund investments (and/or stock investments) have been made through a demat account, the nominee of the deceased will have to submit the death certificate and a transmission (transfer) form to initiate the transfer of securities to his/her demat account.

In both the cases, if no nominee has been specified, then the legal heirs approaching the fund house or the depository participant have to provide a succession certificate and a no-objection certificate from the remaining legal heirs, in addition to the other documents.

While having a nominee is critical to a smooth transfer of your assets to your family, this may not always be enough in the case of investments discussed above. Since the nominee is only a trustee (can also be one of the legal heirs), there is always the risk of rival claims by the other legal heirs. So, you may need to leave a will, clearly specifying the nominee as your only legal heir.

A similar situation may not, however, arise in the case of a nominee (mandatory) for a life insurance policy. This is thanks to the introduction of the concept of a ‘beneficial nominee’ (includes spouse, parents and children) by the Insurance Laws (Amendment) Act, 2015. “If an immediate family member, such as spouse, is made the nominee, then the death benefit will be paid to that person and other legal heirs will not have claim on the money. This makes the nomination process more meaningful,” explains Pawan Mahajan, Head of Underwriting, Bajaj Allianz Life Insurance.

He further adds, “An insured can nominate a person other than from his/her immediate family members but such a nominee will not be considered the ultimate nominee according to the Act.”

Once the policy holder passes away, the nominee has to submit the claim form, death certificate, identity proof of the nominee and the original policy bond.

In cases where no investigation is required, the claim is settled within a few days of submission of all documents.

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