(Nominee vs legal heir, mutual fund nominee, nominee for shares, nominee for EPFO, Nominee for SBI online, nominee for digital assets, complete nomination process)
Introduction
Indian investors have let go of a 35,000 crore amount as of February 2023. According to RBI total amount of unclaimed deposits transferred to RBI by public sector banks was 35,000 crore. These accounts were not operated for 10 years. RBI is in the process of developing a centralised portal that will enable eligible beneficiaries to search across multiple banks for possible unclaimed deposits based on user inputs.
One of the reasons that this happens is that account holders never appoint a nominee for their account. If you want your account to be transferred to your rightful heirs then you must appoint a nominee. Recently the government has also been active in increasing awareness among investors for nomination facilities. SEBI has also made it mandatory to appoint a nominee for mutual fund portfolios.
The nomination makes it easy to transfer accounts to legal heirs. In case of the absence of nomination, it becomes a very time consuming and tedious process to claim for the accounts as they have to prove first that they are the legal heirs of the original account holder.
What is the difference between a nominee and a legal heir?
A nominee is not the owner of the assets of the person after the person becomes deceased. The nominee will hold the assets in a trust till assets are transferred to legal heirs. If the person has established a will then the transfer of assets will be done as per the will. If the person dies without making a will then the transfer and distribution of assets will be done as per the personal law applicable to the deceased, i.e. in the case of the Hindu Succession Act, the nominee will have to hand over the assets to class-1 and class-2 heirs.
You can refer to this link for a detailed description of Class-I and Class-2 heirs.
The first right on wealth is of Class I heirs and only if there is no one available in Class I, then relations under Class II can claim their rights.
A nominee will collect assets from financial institutions and will transfer them to the legal heirs according to the will of the owner. If you want the nominee to also get a portion of your assets then you will have to specify this in your will as a nominee is not automatically entitled to your assets.
For example, suppose a person holding a bank account dies, the nominee will have to submit the death certificate and their identity certificate to the bank, and the bank will then transfer the control of the account to the nominee. The nominee will then hand over the account to the rightful heirs.
If there is no nominee then heirs will have to first obtain a succession certificate from the civil court and then they will have to submit this succession certificate and the death certificate of the original account holder to the bank in order to be able to claim the account. So nomination helps in avoiding in time delays and hassles in the transfer of assets to their rightful heirs.
You can appoint your legal heir as your nominee but the terms of your will (if you have prepared one) will supersede the nomination. If Mr. A names his wife as a nominee for his term plan but specifies in his will that the money should be split evenly among his children and parents, the wife will be required to disperse the proceeds in accordance with that will. In this case, if Mrs. X is the only nominee and beneficiary, the other legal heirs may contest the Will and inquire as to why their rights have been violated. It’s best to include all of your legal heirs in your will along with a statement of what you want to leave them and why, in order to avoid such complications.
Who to appoint nominee?
You can appoint anyone, your spouse, your parent, distant relatives, friends or even a minor (with detailed information about his / her guardian). But some institutions have set their specific rules for nominee declaration, for example, EPFO only allows family members to be appointed as nominees.
In the case of mutual funds, governments, local authorities or religious or charitable trusts. But you cannot nominate any society, body corporate, partnership firm, Karta of Hindu Undivided Family, or a Power of Attorney holder.
In the case of insurance, there is a concept of ‘beneficial nominee’ that was introduced in 2015. This states that a policyholder may designate the spouse, parents, or children as beneficial nominees either separately or jointly. They will be considered the ultimate recipients of the funds the insurer will pay out, not just trustees. The usual norm will apply and the nomination will only be taken into consideration as a custodian if the nominee differs from those previously indicated.
Most savings and investment instruments allow you to have multiple nominees and define the share that you would like to distribute to each of them, adding up to a total of 100%. If you fail to mention the percentage share, the claim settlement will be made equally among all of them. For joint assets, a nominee can be changed only after the consent of both owners.
You can also appoint a citizen of another country as your nominee. This is helpful in cases where children have settled abroad and gained citizenship in a different nation. “To ensure a smooth transfer of ownership and avoid taxation issues, it is best for the foreigner to have an Indian PAN number. This is because the assets being sold or redeemed will be taxed according to Indian laws before the proceeds can be transferred in their name.
Pick the right nominee for your assets
| Asset Class | Who can be the nominee | Number of nominees | Can the nominee be the heir | Important points |
| Life insurance policy | Spouse, parents, children, friends, a distant relative | Multiple nominees with shares as specified by you | Next of kin can be a beneficial nominee and will be treated as the ultimate beneficiary of the proceeds payable by the insurer, excluding other legal heirs | If you nominate a non-family member, you will need to prove insurable interest for such a nominee |
| Bank accounts | Anyone including grandchildren | One for bank account, max 2 for joint ocker account | The nominee is only the custodian for the legal heirs | You can choose to have separate nominees for different accounts, FDs and RDS in the same bank |
| Shares / Stocks | Preferably kin | Only one | The nominee may become the absolute owner if the securities are vested in their name | If a nominee dies after the death of the legal owner, the legal heirs of the nominee may be eligible to get the proceeds of the shares |
| Mutual funds | Anyone, even religious or charitable trusts | Upto 3 with shares as specified by you | The nominee may become the absolute owner if the securities are vested in their name | All investments (though different schemes) under the same folio will have the same nomination |
| PPF | Preferably a family member | Multiple nominees with shares as specified by you | The nominee is only a caretaker of the asset | You cannot nominate anyone in case of a minor’s account |
| EPF | Only a family member | Multiple nominees with shares as specified by you | Your nominee will inherit the proceeds from the fund and the legal heirs will have no right over it | If a person does not have a family, they can nominate anyone or even an Institution |
How to appoint or update nominee details?
You can access the below links for appointing or updating nominee details in various institutions:
- Nomination facility for SBI
- Nomination facility for HDFC
- Nomination facility for Zerodha
- Nomination facility of AngelOne
- Nomination facility for Parag Parikh mutual funds
- Nomination facility for CAMS mutual funds
- How to Update EPF Nominee Online
- How to update nominee for LIC policy
What about nominee for your digital assets?
Social media platforms have become an essential part of our lives, offering a wealth of digital assets that empower users to connect, communicate, and collaborate with others. We often store our private and important data on web. This would include our email, websites, domains, digital currency, social media handles, photographs, blogs, cryptocurrency, etc. hence it is extremely important to ensure that after us our data is properly handed over to our loved ones:
Nominee for Gmail, Google Plus, Photos, YouTube, Calendar, Docs, and Drive
For logging into Gmail, Google Plus, Photos, YouTube, Calendar, Docs, and Drive, almost everyone has a Google ID. However, did you know that it features a function that lets you provide your family unrestricted access to the contents of your account after you’re gone?
After logging in, go to My Account by clicking on your user name in the top right corner of the page. Select Change This Setting from the list of Inactive Account Managers.
You can choose to notify up to 10 dependable friends and family members if you don’t log in for a period of time ranging from three to 18 months by selecting this option.
Google also offers you the option to share your data with them. They do not gain control of your account, it should be stated. Instead, they will get an email with a list of the information you have decided to share with them and a download link. Your nominees effectively gain access to all of your emails related to banking, insurance, and finances as well as your social networking passwords linked to this ID, photos, blog posts, videos, and any other data you have stored in the Google ecosystem.
Nominee for Microsoft
Microsoft does not permit the transfer of an email account to a person’s next of kin in the event of a death or incapacitation. All domains that end in @outlook.com, @msn.com, @hotmail.com, @live.com, and @windowslive.com are affected by this. However, families—defined by Microsoft as partners, parents, and kids—can ask the Microsoft Custodian of Records at msrecord@microsoft.com to close an account and disclose its data.
However, they will have to provide information such as the full email addresses for which they are looking for this information, the full name that was used to open the account, as well as a death certificate, a legal document proving they are the user’s next of kin, executor, or beneficiary of their estate, or that they have power of attorney.
Microsoft will transfer the account’s contents on a DVD and transmit it to the requester at the provided address once it is happy with the documentation.
Nominee for Facebook
You may have seen that Facebook recently introduced a Legacy Contact function in the US, allowing you to designate someone to be granted restricted access to your account in the event that you pass away. Facebook guarantees to abide by your instructions when the time comes, so you may either name the person in your will or choose a single digital heir through the Security tab in Settings.
Your Legacy Contact has the ability to update your profile picture, publish a final message on your timeline (likely a heartfelt tribute), and, with your permission, download an archive of previous images and posts. He or she cannot access your private communications or make any changes to content that has already been uploaded.
When should you update the nominee details?
It is essential to keep your nominee details up to date and review them periodically to ensure they align with your current wishes and circumstances. Here are some instances when you should update your nominee details:
- Change in Marital Status: If you get married or divorced, it is essential to update your nominee details accordingly. In case of a divorce, you may want to remove your ex-spouse as a nominee and add a new nominee.
- Change in Family Dynamics: The birth of a child, the death of a family member, or a change in your family dynamics may require you to update your nominee details.
- Change in Financial Circumstances: If your financial circumstances change, such as a change in job, change in assets or liabilities, you may want to update your nominee details to ensure your assets are distributed as per your current wishes.
- Change in Personal Preferences: Your personal preferences may change over time. For example, you may want to remove a friend as a nominee and add a family member.
- Nominee Unavailability: If your existing nominee becomes unavailable due to death or any other reason, you should update your nominee details promptly.
Limitation of nominee
The role of a nominee comes with its own set of limitations, as they are bound by the instructions outlined in a Will or financial instrument placed under their trust. Or, to put it another way, they act in accordance with the wishes of the person who appointed them. For instance, unless in the case of a partial withdrawal or with the institution’s agreement, a nominee cannot withdraw an investment prior to its lock-in term without incurring penalties.
Additionally, if more than one nominee are nominated and their viewpoints diverge, the legal heirs’ preferences or a majority vote among the nominees may prevail. Although a minor may be designated as a nominee, it is crucial to additionally designate a trustworthy guardian to manage their affairs. Within three years of becoming an adult, the child may appeal to their guardian’s decisions if they believe their assets have been mishandled.
To ensure that your assets are managed in accordance with your will and safeguarded from potential exploitation, it is necessary to carefully analyse the nominee and guardian selection process. By doing this, you may make sure that your legacy is upheld and that your loved ones are taken care of according to your intentions.
Conclusion
Nominee declaration is a very important process to ensure that your assets are transferred to your loved one without any time delay or hassle. From time to time, you should review your nominee declarations and update them if there is a need to do so, for examples some conditions for updating a nominee declaration could be a Change in Marital Status, The birth of a child, the death of a family member, Change in Financial Circumstances, Change in Personal Preferences, etc. Before appointing someone as a nominee you should know their role and rights of the nominee. After appointing your nominee you should also inform them about investment details so that they can take action timely.
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FAQs
Is it mandatory to appoint a nominee for a mutual fund portfolio?
Yes, SEBI has made it mandatory to appoint a nominee for mutual fund portfolios.
How to appoint a nominee for SBI online?
For nomination in SBI online you can follow this link: Nomination facility for SBI.
Is the nominee automatically entitled to ownership?
The nominee is not automatically entitled to your assets.
Who can be a nominee for the PF account?
According to EPF regulations, any member who has a family may designate one or more family members as candidates. Additionally, a member without a family may suggest anyone else. But this nomination will be void if the individual later starts a family.
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