Nomination is one of those financial tasks people usually complete while opening a bank account, investing in mutual funds, buying shares or purchasing an insurance policy. After that, it is easy to forget about it. But a nominee is more important than you think. Leaving your nomination blank or failing to update it after major life milestones can trap your family in a bureaucratic nightmare.
When an investor dies, their financial assets do not automatically disappear or become available to family members. Financial institutions require a verified claimant or legal heir to establish the right to the assets.
In the absence of a nominee or a proper estate plan, this process can become complicated and may require additional legal documents.
For investors, therefore, keeping nominations updated can help make the transfer of financial assets smoother for their dependants.
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What Happens to Your Money When You Die?
When a person dies, their investments remain with the respective financial institution until the claim or transmission process is completed. If there is a registered nominee, the nominee can approach the institution with the required documents to initiate the process, reducing the paperwork and difficulty faced by family members.
Without a nomination, legal heirs may have to provide several documents such as a probated will, indemnity bond, KYC documents and no-objection certificates from other legal heirs to establish their claim and complete the transmission process.
For example, an investor may have investments spread across several mutual fund schemes but no nomination registered against them. After the investor'' death, the family may have to complete additional formalities before the investments can be transferred or redeemed.
What Is a Nominee?
A nominee is a person named by an investor to receive or claim the financial asset after the investor's death. Nomination facilities are available across several financial products, including bank accounts, mutual funds, demat accounts and insurance policies.
However, a nominee should not automatically be considered the final owner of the asset. In many cases, the nominee acts as a receiver, agent or trustee for the legal heirs. The ultimate ownership can depend on succession laws and the investor's valid will.
Who Can Be a Nominee?
An investor can generally nominate a family member such as a spouse, parent or child. A trusted person outside the immediate family may also be nominated where permitted by the relevant financial product and rules.
The nominee should be someone the investor trusts to handle the assets responsibly and facilitate their transfer to the rightful beneficiaries after the unfortunate event of your death.
Can You Change Your Nominee?
Yes. Investors can change their nomination by submitting a fresh nomination form and cancelling or replacing the existing nomination, subject to the rules applicable to the investment.
Investors should review their nominations after major life events such as marriage, divorce, the birth of a child or the death of an existing nominee.
If an NRI is nominated, the applicable Reserve Bank of India rules will govern the nomination.
Rights Of The Nominee
It's important to note that a nominee does not become the rightful owner of the units merely through the nomination. Nomination and inheritance are two different things. A nominee may receive or take control of the investment from the financial institution, but this does not by itself make the nominee the ultimate legal owner. The rights of legal heirs can depend on the investor's will and applicable succession laws.
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When Is Nomination Not Permitted?
In mutual fund investments, nomination is generally not available for non-individual investors such as corporations, trusts, HUFs and partnership firms.
Nomination is also not permitted for investments held in the name of a minor. However, a minor can be named as a nominee, in which case the guardian's details need to be provided as required.
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