All of us have heard the saying – ‘Nothing is certain but Death and Taxes’. So how much ever we do not like to deal with taxes, we have to manage them. Similarly, though death is not a pleasant topic to think or talk about, we have to understand that it is an eventuality. Therefore it is important that we plan our estate such that it is distributed appropriately among our loved ones.
Many people think that they can nominate someone for their investments and assets and they have finished the task. That is not enough!
A nominee is a person who is appointed by the owner of the assets to transfer the assets to the legal heirs after the owner’s death. The nominee will hold the assets if there are disputes and till the legal succession is decided.
A legal heir is a person who will inherit the estate of the deceased individual who is the owner of the estate. The legal heirs can be decided by will or by laws of inheritance applicable.
Let us look at the various investments, assets and liabilities and how they are managed with regards to inheritance –
Employee Provident Fund – When one opens an EPF account, a nomination has to be given. The nominee will inherit the fund. The legal heir has no right on it. As per the EPF rules one has to appoint a family member as nominee.
Public Provident Fund – In case of PPF, the nominee gets only custody of the amount. The legal heirs are entitled to own it. If there is a loan on PPF, the nominee or legal heir have to ensure to close the loan and pay the interest balance if any.
Fixed Deposits – The legal heirs will get the ownership of the FDs on the death of the depositor. The nominee will again be just a custodian.
Mutual Funds – The legal heirs get the mutual fund units. Mutual fund houses ask us to fill out a nomination form. But nominees are only custodians and will not become owners unless they are the legal heirs themselves.
Shares – It is mandatory to appoint nominees for shares. If there is a joint holder, he/she will become the owner in case of death of one of the owners else the nominee gets the ownership. If a will has been made, then the ownership gets transferred as per the will.
There has been a bit of confusion on the transfer of ownership of shares after the death of the owner due to some court cases. In some cases, the nominee has got the ownership rights and in some cases, the legal heirs have got the ownership.
Real Estate – The legal heirs will get the ownership rights of real estate in case of death of the original owner. The nominee will be a trustee for the estate of the deceased until the estate is passed on to the true owners. The nominee will have no ownership rights unless he/she is the legal heir.
Life Insurance – In case of life insurance, the claim amount goes to the legal heirs or beneficial nominees (if any) after the death of the insured. Beneficial nominees are nominees who are immediate family members such as parents, spouse and children. The claim amount gets transferred only to the beneficial nominee and not to other legal heirs if any. More than one person can be named as beneficial nominee.
Important Tips to Avoid Ambiguity
- Ensure that all assets have nominations.
- Appoint the intended beneficiaries as nominees or second holders so that there is no confusion and no legal hassles.
- It is best to draft a will. A valid will overrides all other kinds of arrangements. It also covers the entire estate.
- Documents such as succession certificate and will are important while claiming ownership rights. It is important to have them in place.
Some Frequent Questions Answered
1) Why should I appoint a nominee?
It is important to appoint a nominee so that he/she becomes a custodian of all assets and distributes them as per law or as per the valid will. If there is no nominee, the legal heirs will have to run to every institution to prove their legal status to get what is rightfully due to them.
2) Can a nominee deposit money in the PPF account after the death of the PPF account holder?
Neither a nominee nor a legal can deposit money in the PPF account after the death of the PPF account holder.
3) Can I change the nomination?
You can change nomination for all assets such as PPF account, Life insurance policy (before policy matures), shares, mutual funds, real estate and Bank FDs provided the company is notified and the nomination is within the rules specified.
4) I have not made nominations in some of my assets when I acquired them. Is it possible to do it now?
You can appoint a nominee by filling the relevant application forms and submitting them to the respective companies if you have not done it at the time of asset purchase.
5) Can I choose my child who is not yet an adult as the nominee?
A minor (person under 18 years old) can be appointed as a nominee. The child’s guardian should sign the relevant documents on behalf of the minor.
If you have any questions or observation – must add in the comment section.
what happens in cases where the individual is single and has his / her brother or sister as nominee.
In case of Hindus – Hindu Succession act will apply, in Case of Muslims – Sharia but not sure in the case of Christians.
Very informative. Thanks for such an article
Good informative article.
However incase of insurance if the policy is assigned then does it go to the assignee or the legal heir.
Once insurance policy is assigned, the assignor loses his rights over the policy and the assignee become the owner of the policy. Thus, on assignment of insurance policy, it goes to assignee.
Kindly elaborate ” ASSIGNMENT OF INSURANCE POLICY’ and does it override the nominee totally ?
Valuable article, the Legal heir also appointed through the online portal.
Dear Amitji / Hemantji ,
What are the online portals one can resort to for appointing legal heirs and making will ?
You can check this https://www.retirewise.in/affordable-online-will-writing-services/
Really appreciable. Very useful. Thanks for sharing it.
Thanks Dr Dinesh 🙂
Very informative article Hemant ji. Do you give professional investment advice and if yes, how much do you charge? Please write to me separately via email.
Thanks and regards.
You can check this https://www.retirewise.in/services/financial-planning-services/
In case of mutual funds what happens if there are joint holders?
Further in case units of Mutual funds are transmitted to nominee, can they subsequently be transferred to the legal heir? On checking with some AMCs they are asking to redeem as their contention is mutual funds are not transferable. Any revert from Mr Hemant and or anybody else with personal experience?
Mutual Fund units can’t be transferred – redemption is the only option. (exception case – if units are in demat form)
How about saving bank account deposit ?
What are the tax implications for both nominee and legal heir? are the assets taxable if yes then under which section?
Dear Dr Archi,
As such there is no inheritance in India but there will tax when some plan to sell that asset. Tax will depend on the type of asset – CA will be a better person to help.
I am an avid follower of your enlightening Financial articles. This is wonderfully explained. What minimum precautions need to be ensured while writing a WILL to avoid future malafide challenges and litigation ? Is registration of the will and appointing an executor a must and mandatory ?
I am planning to write an article on this but registration of WILL is important.
Really appreciable article
Thanks for sharing
Highly informative. I will use it in my inter action with senior citizens and other groups for awareness creation
Sir, I liked your article very much Explained your very best. And I liked this thing very much. The way you write is great. And now I will always be reading your article. Thank you
Thanks a ton Nilesh 😉
Thanks for this informative article, Hemant.
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