Whenever we begin our investment journey, all we are concerned about, is completing the paperwork, getting the account opened, and raking in the big bucks. Seldom does our eye go to the little column that asks us to put a nominee for our investments.
While investing, having to put down a nominee may seem unimportant but your next of kin will be eternally grateful if you do so. In the absence of them being listed as a nominee, the next of kin has a hard time claiming the recovery of shares and any other assets attributed to the deceased. A number of financial agencies are beginning to make assigning a nominee compulsory, but most investors continue to ignore the practice.
What is it
A nominee is typically an individual who has been designated by the asset’s owner to be entitled to his asset in the case of the owner’s death. The title, the property, and the benefits all accrue to the nominee in such a case. Appointing one ensures that your shares get passed on to your trusted member without any complex legal process. It helps safeguard your assets and enables shares recovery and claim of other assets in the event of your death.
Although the account holder can assign anyone they deem fit as a nominee, it is ideal to appoint someone from your close relatives, family members, siblings, associates, or friends. You can also nominate religious trust, charitable trust, or any other local authorities as a nominee if you so wish.
Why do it
There have been a number of documented cases where shares bought by an individual have been lying dormant for years without their family having any idea about it. Their family might even have changed cities, being totally unaware.
Take the case of a renowned lawyer. Following his demise, there is INR 3.5 crore in IEPF shares claim. The lawyer did not name a nominee in his account but had a son who in turn had 8 kids. Of them, 2 run a small local shop, 2 are happily settled in the United States, and the rest are not of legal age yet. When the son gets to know about the small fortune he can potentially inherit, he initiates a claim of shares from IEPF. However, they tell him that his father did not cite any nominee for his investment. As a result, all his legal heirs i.e. the lawyer’s son and all grandkids who are at least 18 years of age will have to come to a consensus about what to do with the investment. Even if one person disagrees with what to do about the holdings, the entire shareholding will go to waste. In such a scenario where all the next of kin are at a different point in their financial lives with some being happily settled while some are struggling, it becomes very difficult for the family to arrive at a consensus. In the end, nobody from the family gets a single penny from what could have been rightfully theirs.
How the process works
In cases where a nominee is mentioned, the nominee needs to produce the death certificate of the shareholder and other legal documents for the recovery of shares. While this may sound straightforward, the process can get long, tedious, and complex. The ease or otherwise of the process and the cost associated with it can vary greatly depending on the jurisdiction you are in.
In cases when the nominee is not mentioned, things begin to get even more complicated. In such a case, all natural legal heirs of the deceased must meet and come to a consensus about how to handle the transmission of shares. The process also involves obtaining a succession certificate which is a legal document necessary in cases where an individual dies without leaving a legitimate will behind.
A succession certificate is typically issued by the District Judge of the appropriate jurisdiction, where the deceased person was living at the time of death. This becomes very important since the ease of the process of obtaining a succession certificate can vary from state to state.
Steps to obtain a succession certificate:
- Step 1: Legal heirs must file a petition in the authorised format and submit it after verification in the civil court. A copy of the death certificate must also be attached with the petition.
- Step 2: A fee must be submitted which is a specific percentage of the value of the estate as imposed by the court. While this fee is typically around 2-3% of the estate’s value, it can differ greatly depending on the state you are in. While a number of states across the country cap the maximum amount due, the fee can reach as high as 8% in certain cases.
- Step 3: Now the court examines the petition and makes it public through a national newspaper. The court notifies all other heirs and respondents and allows them a period of 45 days to raise objections against the petition with required documents to support their claim.
- Step 4: If no one raises objections within the specified time period, the court then grants the succession certificate to the petitioner.
- Step 5: In some cases, the judge may ask the petitioner to sign an indemnity bond, to make sure that no losses occur due to the misuse of the granted succession certificate.
This entire legal process of getting the succession certificate may take up to a year. In cases where the IEPF shares claim is large in value, the associated fee to be paid to the court will also be very high. People have had to let their claims go if they are not financially sound.
Where nominees can be appointed
Ideally, you should safeguard all of your investments by assigning a nominee. Below are the cases in which nominees must be present:
- Nomination in life insurance: A policyholder has the option of naming several candidates and specifying their portion of the policy profits. However, nomination in life insurance has one drawback. Because insurance policies are purchased to protect your financial dependents, your first choice of the nominee must be a family member. Except for receiving the policy monies upon the death of the Life Assured, the Nominee receives no further benefits. Without the approval of the Nominee, the life assured may modify or revoke a nomination at any time.
- Nomination in mutual funds: When it comes to mutual funds, you can designate up to three persons to be registered as nominees at the moment the units are purchased. Even a minor can be a nominee, provided their guardian is specified in the form. In mutual funds, the nomination is done at the folio level, and the nominee receives all of the units in the folio (s). If an investor invests again in the same folio, the nomination applies to the new units as well.
- Nomination in share market: As per Section 109(A) of the Companies Act and 9.11 of the Depositories Act, “the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case.” It implies that if you do not have a will, anybody who has been nominated by you for your shares will be the final owner of those stocks; inheritance rules will not apply; nevertheless, if you do have a will, it will be the source of truth for recovery of unclaimed shares.
- Nomination in public provident fund: Under a PPF, you can propose one or more people as nominees. A nomination for PPF can be changed or canceled using Form F. It’s also worth noting that if you register an account for a child, you won’t be able to nominate anybody.
- Nomination in bank accounts: You can nominate up to two people as nominees for a bank account and fixed deposits. As per Section 45 ZA (2) of the Banking Regulation Act, the nomination merely puts the nominee in the shoes of the depositor after his death and clothes him with the exclusive right to receive the money lying in the account. It gives him all the rights of the depositors so far as the depositors’ account is concerned. But it does not make the nominee the owner of the money lying in the account.
What’s at stake
As per the latest available report from the Reserve Bank of India, there were an estimated Rs 8,000 crores of ‘unclaimed’ deposits were lying with banks across the country. These ‘unclaimed’ deposits arise solely because of the problem of not assigning a nominee to your investments and hinder the transmission of shares. To check whether your account has a nominee, you can simply visit the bank and check. If there aren’t, you can nominate whoever you want by filling up a simple nomination form.
Ensuring that you have a nominee and that you have been nominated in your partner’s and parents’ accounts will go a long way in making you feel financially secure despite future uncertainties.
To help make sense of the process and help you with nomination or asset recovery, we at Infiny Solutions are here to help. Our team of experts untangles the complicated legal and administrative process to make things easier for you. Infiny Solutions is with you every step of the way.