Securing our family’s future is topmost priority for most of us. Alongside taking insurance policies and making investments, there is a crucial step in this—estate and succession planning to ensure our family inherits our assets without delays, hardship, or confusion.
Yet, this aspect is often neglected due to the anxiety and discomfort arising from contemplating unfortunate circumstances. It is necessary to overcome this and take the necessary steps. Even if it is a penny, ensuring it reaches the right person promptly is important.
Without estate planning, families may face lengthy legal disputes and financial hardships. The demise of a person may cause extreme emotional shock and despair. In such circumstances, the dependents may not be in the right state of mind to arrange for detailed documentation to claim the funds belonging to the deceased person.
This is where nomination could be a lifesaver. Among the many aspects of estate planning such as wills, business succession planning, and nomination for financial assets, the easiest and the most basic aspect is nomination.
A nominee is the person specified to receive and take custody of another person’s financial assets after the latter’s demise. The nominee can be and usually is someone in the person’s immediate family, such as spouse, children, parents or siblings.
To understand the importance of nomination, let us take the case of bank accounts and deposits. If a deposit holder has specified a nominee for these, after his demise, the nominee can simply request for a fund transfer to their account by producing the death certificate of the deceased person and the nominee’s identity proofs.
If no nominee is specified, the bank would require a whole bunch of documents from the claimant, such as probate of will, legal heirship certificate, succession certificate, and no-objection certificate from other legal heirs, all of which could take at least a few weeks, if not months, to obtain from the respective authorities.
A nominee may not always be eventual beneficiary. In such cases, the bank still pays the nominee, who acts as a trustee holding the deceased’s funds on behalf of and until the money or assets reach the rightful heir under the will or succession laws.
Nomination serves a very important purpose of making available the funds immediately in the hands of the person whom the accountholder has trusted it to. Hence, it becomes very important to carefully choose the nominee and specify it clearly with the bank.
Nomination must also be reviewed as life’s circumstances change. While a will ensures there is no legal dispute within a person’s family, nomination ensures someone in the family receives the funds immediately.
The same is the case with insurance policies. Specifying a nominee ensures the intended beneficiaries get the proceeds of the policy. In insurance, a policyholder may be able to specify more than one nominee and specify the percentage of the proceeds that must go to the respective nominees.
While a beneficiary is a person who is entitled to receive the proceeds of the policy, the nominee is the one who is entrusted to receive the proceeds on behalf of the beneficiaries. The nominee may be the same person as the beneficiary or legal heir, and is usually so. But if the nominee is a minor, a guardian must be mentioned.
If any other person apart from immediate family is chosen as the nominee, it may require the approval of the insurance company. Insurance laws also permit choosing successive nominees, that is, persons chosen by the nominees themselves to receive the policy benefits in case of their demise.
The proposed amendments to the banking laws introduced in the Lok Sabha would allow up to four nominees for bank accounts and permit successive nominees similar to insurance. This is expected to make estate planning easier and clearer, where one may make all legal heirs as nominees.
Aligning nomination with what a person would or has entered in their will makes the process of succession conflict-free, gives the person peace of mind and their legal heirs certainty.
Usha Ganapathy Subramanian is a practicing company secretary in Chennai. Dr. Ranjith Krishnan is a sustainability consultant in Thane.