Not having a nominee can put your wealth at risk, especially if there are ambiguities following the absence of a Will.
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Wealth creation is a long-term process that can help you leave a legacy for your loved ones. But how can you ensure that your wealth goes to the right person after your demise? The answer is nomination, a crucial procedure for designating one or more persons eligible to receive your specific assets after your death. For example, suppose you have a life insurance policy. In that case, the nominee mentioned in your policy is the person who will receive the claim proceeds after your death.
Similarly, the nominee receives the corpus in your bank as FD, RD or in a savings account, PPF fund, mutual fund, stocks, etc. Choosing the wrong nominee can put your wealth at risk of being misused. Let’s find out why having a nominee is essential and why you must choose one carefully.
Why is a nominee important?
Nominees are the custodians of assets whose owner has passed away. So, after the owner’s death, the nominee gets the legal right to receive the eligible asset. Often, a nominee may not be a legal heir of the assets, so they must act as guardians until the actual legal heir is announced. There can be different nominees of a person for different types of assets and accounts.
For example, a person can have different nominees for different FDs, savings accounts, PPFs, mutual funds, life insurance, etc. Also, depending on the type of asset, one can have single or multiple nominees. For example, products like insurance policies and mutual funds allow multiple nominees. Multiple nominees receive the asset as per the share defined by the asset owner. It’s important to note that only a single nominee is usually allowed in a bank account.
Soumee Bhatt, General Counsel, Bankbazaar.com, explains, “Though it is important to add a nominee in a bank account, however, there are multiple investments where we tend to forget to add a nominee or update nominee details. You must ensure that the nominee you add is the right person to whom you want to pass on your assets. This process may look simple, but it plays a vital role in settling your investments following untimely demise, especially when your family needs funds to settle your dues.”
Who can be a nominee?
You can appoint any person, such as a spouse, relative, parents, friend, etc., as a nominee for a specific asset. However, the nominee need not be a legal heir of the property/asset. If the nominee is not a legal heir, then they will be the custodians of the asset. While you can have a single nominee for a bank account, you can appoint separate nominees forrecurring deposits, fixed deposits, and other investments. In the case of mutual funds, a maximum of three people can be nominated in a folio. So, if you have multiple schemes in a single folio, all schemes will feature the same nomination details.
Absence of a nominee puts your wealth at risk
Not having a nominee can put your wealth at risk, especially if there are ambiguities following the absence of a Will. With a nominee in place, the chances are higher that your wealth will be passed on to your desired legal heir. Choosing the wrong nominee can put your wealth at risk of being misused. In the case of instruments such as endowment policies, a beneficiary nominee is allowed to receive the maturity corpus in case of the policyholder’s untimely demise. In such a scenario, if the beneficiary nominee is not chosen carefully, the legal heir may find it challenging to receive the benefit of the endowment policy. This further emphasizes that while having a nominee is essential, choosing a suitable nominee is even more critical.
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At the time of settlement, the latest nominee details you have updated for your assets will be considered. Ensure that you declare nomination for all your investments, such as mutual funds, insurance, shares, small savings schemes, bank accounts, FDs, etc. Do review the nominations for your accounts regularly and make changes whenever required. Remember, having a nominee is different from having a legal heir. So keeping your will ready can help your intended heir avoid a dispute in your absence.
