Are Nominees Always The Beneficiaries Of Your Assets?

Nov 2, 2015

While you transact with banks and invest your hard earned money, you must have learned that it is extremely important to have nominees to your assets. As against earlier times, today a lot more people are nominating individuals for investments done and feel relieved when the nomination is done. This is because there is a misconception that a nominee is always the final beneficiary (the person who is eligible to inherit the deceased's assets). Let us apprise you that this perception of people is not always true.

A nominee is the trustee of your assets, to whom the mutual fund company, insurance company and so on will transfer your funds in case of your unfortunate demise. But this does not mean that the nominee will always be the owner of your assets. 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 country's succession laws.

Let us understand who will be the beneficiary in case of the following 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.
  
  However, for some financial assets such as shares, debentures or Employees' Provident Fund (EPF), the nominee will be the owner of the assets after your death and not the legal heirs.
• Insurance: Earlier, the nominee was not necessarily the beneficiary of the policy and had to distribute the insurance claims of life insurance policies to the legal heirs. However, the new Insurance Laws (Amendment) Act, 2015 has addressed this efficaciously. There is a separate category now called 'beneficial nominee'. If you nominate someone as your beneficial nominee, such nominee, does not have to share insurance money with other legal heir. A policyholder can appoint multiple 'beneficial nominee' mentioning their share.
  
  It is also possible to appoint 'collector nominee' who will simply receive money from insurance company and facilitate the transmission to legal heir which may happen based on succession laws.
  
  New rules have also made it clear that a nominee has a right to claim money even at maturity in case insured person survived the term of insurance but died before claiming the maturity benefits. What's more, earlier, original nomination used to stand cancel on assignment of policy as collateral to a loan. However, new rules say that insurer will pay off the creditor first, but will have to directly transfer the rest of the amount to the nominee appointed by the policyholder.
  
  PersonalFN is of the view that the new rules have not only made nomination more effective but have made the process of nomination more meaningful.
• Property: Again, in the case of property, the nominee may not be the ultimate beneficiary of the assets but he / she may be required to pass them to the legal heirs.

What should be done to ensure a smooth transmission of assets to your loved ones?

In order to transmit your assets to your loved ones smoothly, you may nominate your intended beneficiaries 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. Remember that, making a Will which includes the details of all your assets explicitly is extremely important if you want a hassle free transmission of your wealth to your loved ones after your death. In the absence of this, someone else might lay claims on your assets and / or your family might have to go through lengthy and complex legal procedures to obtain what's rightfully theirs and thus may result in a lot of squabbling and bickering at the time of distribution of assets.

PersonalFN is of the view that simply nominating a person while creating an asset does not necessarily make him/her the beneficial owner of the asset after you are gone. Every asset is governed by different laws which might change over time. Thus estate planning needs to be undertaken to ensure the easy transmission of your wealth. Moreover, it is imperative to take all the above mentioned factors into account while undertaking your estate planning activity. Remember that this activity is an inherent part of the financial planning process and should be carried out the moment you create an asset, irrespective of your age and the size of the asset and should reviewed over time.

PersonalFN believes that it is always better to take the help of a trusted lawyer who has expertise in undertaking the estate planning activity to ensure that your assets are transmitted only to your intended beneficiaries and in an orderly manner after your death.

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