No, legal heir and nominee are not the same, although they are both related to the transfer of assets or benefits upon the death of an individual. Here’s an explanation of each term:
Legal heir: A legal heir refers to a person who is entitled to inherit the assets and properties of a deceased person based on the laws of inheritance or a valid will. The legal heirs are determined by the applicable personal laws or the law of succession in the jurisdiction where the deceased person resided. The legal heirs are typically close family members, such as spouse, children, parents, or siblings, and they inherit the assets in accordance with the prescribed order of succession.
Nominee: A nominee is a person who is appointed by the asset owner or the policyholder to receive the benefits or assets in the event of their death. Nomination is a process where the asset owner or policyholder specifies a person who will receive the assets or benefits, typically by filling out a nomination form or making a declaration in a will. The nominee’s role is primarily to receive the assets on behalf of the legal heirs and hold them in trust until they are distributed to the rightful beneficiaries.
In simple terms, a legal heir is determined by law and inherits the assets based on the laws of succession, whereas a nominee is a person nominated by the asset owner to receive the assets, but the nominee may not necessarily be the legal heir. The nominee acts as a facilitator to ensure that the assets reach the rightful heirs as intended by the asset owner
Will your Nominee get the money on your death?
Yes, if you have nominated someone to receive your assets or benefits in the event of your death, the nominee will typically receive the money or other assets as per your nomination. However, it’s important to note that the nominee does not automatically become the legal owner of the assets. The nominee holds the assets in a fiduciary capacity and is responsible for transferring them to the rightful legal heirs as per the applicable laws of inheritance.
Upon your death, the nominee is expected to initiate the legal process for the transfer of assets to the legal heirs. This may involve providing necessary documentation, such as death certificates and legal proof of relationship, to the relevant authorities or institutions holding the assets. The assets will eventually be distributed to the legal heirs according to the laws governing inheritance or as specified in a valid will.
It’s worth mentioning that the specific procedures and requirements may vary depending on the jurisdiction and the type of assets involved. It is advisable to consult with a legal professional or seek guidance from relevant authorities to ensure proper transfer of assets to the intended beneficiaries
Did you think that your nominee is the person, who will get all the money legally from your Life Insurance Policy and Mutual funds investments ? Who, do we want to leave all our wealth to, in case something happens to us ?
Important:
- Mention the Full Name, Address, age, relationship to yourself of the nominee.
- Do not write the nomination in favour of wife and children as a class.
- Give their specific names and particulars existing at that moment.
- If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.
Why is the concept of Nominee?
The concept of a nominee serves several purposes and is primarily designed to facilitate the smooth transfer of assets or benefits to the intended recipients upon the death of an individual. Here are some reasons why the concept of a nominee exists:
- Ease of asset transfer: By nominating someone, an individual can simplify the process of transferring their assets or benefits after their demise. The nominee acts as a representative of the deceased person and ensures that the assets are received and held on behalf of the legal heirs until they can be distributed as per applicable laws.
- Quick access to funds: In cases where the deceased person had financial assets like bank accounts, insurance policies, or investments, nominating a person as a nominee allows for faster access to funds. It helps avoid delays in providing financial assistance to dependents or beneficiaries who may rely on those funds for immediate financial needs.
- Clarity of intent: Nominating a person helps clarify the intentions of the asset owner regarding the distribution of their assets. It provides a clear indication of who the asset owner wishes to receive their assets or benefits after their death, which can help minimize disputes or misunderstandings among potential heirs.
- Privacy and confidentiality: By nominating a person, an individual can maintain a level of privacy and confidentiality in the distribution of their assets. The nominee acts as an intermediary and shields the details of the assets from public knowledge, ensuring a certain degree of confidentiality in the process.
- Avoiding probate or legal complexities: In some cases, the nomination process can help bypass or simplify the probate process, which is the legal validation of a will. By designating a nominee, the assets can be directly transferred to the nominee without the need for a lengthy and complex probate procedure.
It’s important to note that the nominee is not the ultimate owner of the assets but holds them in a fiduciary capacity until they are distributed to the legal heirs. The legal heirs, as determined by the applicable laws of inheritance, ultimately become the rightful owners of the assets.
So you might be wondering, if the nominee does not become the sole owner, why does such a concept of a nominee exist at all?
It is pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund or your Shares should at least get out of the companies and go to someone you trust, and who can further help, in process of passing it to your legal heirs.
Otherwise, if a person dies and has not nominated anyone, your legal heirs will have to go through the process of producing all kind of certificates like death certificates, proof of relation etc., not to mention that the whole process is really cumbersome! (For each legal entity! The insurance company, the mutual funds, for the shares, for the real estate..) .
So, to simplify, if a nominee exists, these hassles do not happen, since the company is bound to transfer all your money or assets to the nominee.
The company then goes out of scene & then, it is between nominee and legal heirs.
Example of Nomination:
Collin was 55 years old professional who died recently in a road accident. As his children were settled, he wanted to make sure that his wife is the sole owner of all the monetary assets. This includes his insurance policy and mutual funds. So during his lifetime, he nominated his wife as a nominee in his term insurance policy and mutual funds investments. However, after Collin’s death things did not turn up the way he wanted. The reason being Collin did not leave a will. Though his wife was the nominee in all his movable assets, as per the law, his wife, along with children, were the legal heirs and all of them had equal right to Collin’s assets. One simple step which could have saved the situation was that Collin should have made a will which clearly stated that only his wife was entitled to get all the money and not his children.
A. Nomination in Life Insurance : A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Nomination in life insurance has one limitation, as insurance policies are bought to secure your financial dependents, your first choice of nominee has to be your family members. In case you want to nominate a non-family member like a friend or third party, you will have to show/PROVE the insurance company that there is some insurable interest for the person. This happens because of a Clause called PRINCIPAL OF INSURABLE INTEREST in insurance. Note that provision of nomination in life insurance is related to Section 39 of the Insurance Act.
Note that as per LIC website; Nomination is a right conferred on the holder of a Policy of Life Assurance on his own life to appoint a person/s to receive policy moneys in the event of the policy becoming a claim by the assured’s death. The Nominee does not get any other benefit except to receive the policy moneys on the death of the Life Assured.
A nomination may be changed or cancelled by the life assured whenever he likes without the consent of the Nominee.
Make sure, you have a nominee for your policy for easy settlement of the claim, if you do not have any nominee mentioned in the policy, it can turn out to be a disaster for your dependents to get a claim.
B. Nomination in Mutual Funds: In case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details. Even a minor can be a nominee, provided the guardian is specified in the nomination form. You can also change nomination later by filling up a form which is available on the mutual fund company website.
Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.
C. Nomination in Shares : Now you know what a Nominee means and who actually gets the money. So if there is a husband H, with wife W and nephew N, and he has nominated his nephew N to be the nominee of his shares in demat account, who will have the legal right to own the shares after husband’s death? If you answer is wife, you are wrong in this case! In case of stocks, it does not work the usual way, if a will does not exist.
A reading of Section 109(A) of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights there under in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case. It means that if you have not written a will, anyone who has been nominated by you for your shares will be the ultimate owner of those stocks. The succession laws on inheritance will not be applicable but, in case, you have made a will, that will be the source of truth.
D. Nomination in PPF: Let me give you some shock first. If you have Rs 10 lakh in your public provident fund (PPF) account and you have not nominated anyone for your PPF account, your legal heirs will get maximum of Rs1 lakh only! Yes, it is so important to have a nominee, now you get it. You can nominate one or more persons as nominee in PPF. Form F can be used to change or cancel a nomination for PPF. Also note that you cannot nominate anyone if you open an account for a minor.
E. Nomination in Saving/Current/FD/RD Account in Banks: FD’s also come with nomination facility. While opening a new account, there is a column for nomination in the same form and you should fill it. You can nominate two persons with first and second option. Note that in case you have not done any nomination till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in future. (Examples of ICICI Bank , HDFC Bank , Canara Bank) .
In the same way to change/cancel the nomination, you need to fill up Form no DA-2.
F. Read about Corporate Fixed Deposits: As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an order said that the money lying deposited in the account of the original depositor should be distributed among the claimants in accordance with the Succession Act of the respective community and the nominee cannot claim any absolute right over it.
Section 45ZA(2)(Banking Regulation Act) merely put 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 by no stretch of imagination make the nominee the owner of the money lying in the account, the Bench observed.
CONCLUSION:
Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future.
Mistakes in Personal Finance can be fatal.