The wrong nominee for money assets | Economic Times

You have been told to nominate someone to receive your bank account money, fixed deposits, other financial assets after your death but you should also know that there is a right nominee and a wrong nominee. This matters whether you write a Will, or you don't. Who is the right nominee? The right nominee is the person to whom you bequeath that asset in your will or the heir to the asset as per succession laws in case you don't make a will. Nominating this person will help ensure that transfer of the asset, after your death, is successful, conflict-less and final. Essentially, it is a way of ensuring that the person you want to leave that asset to actually gets that asset for keeps and that too easily.Why would any other person be a wrong nominee?Case I-When a person has written a will before demise.Let us assume that you have written a will but the person you have nominated to receive money from your fixed deposit in Bank ABC is different from the person to whom you have bequeathed the same FD in your Will. In most cases, after your demise, the bank will transfer the FD money to the nominee you mentioned in the FD form where the FD is held only in your name (i.e. it is not jointly held).In case of a jointly owned/held bank FD, if the first holder dies, to whom the asset is transferred will depend on the mode of operation of that asset. Click here to know more: Shares, FDs, property, mutual funds: If 1st holder dies will joint holder get money or nominee?As per Supreme Court judgements, a nominee is merely a custodian of the asset/money, and the actual heir to the FD is the person to whom you left it in your will. If the two persons are different then the actual heir will have to claim the money from the nominee. This can lead to legal wrangles if the nominee does not want to part with the asset/money received. Neha Pathak, Senior Group Vice President, Trust & Estate Planning Motilal Oswal Wealth Management Limited says, "There are various issues that arise in case there is a mismatch between nominee mentioned in the asset and legal heir determined either via a will or relevant succession laws. Financial institutions like banks, mutual funds etc. may transfer the asset either to the nominee or second holder, as the case may be. However, it will be the legal heir who will be required to ask the nominee to transfer the asset or the money to him. There may also be the case where the nominee refuses to transfer the money to the legal heir. In such a case, the legal heir will be required to ask the court to intervene."Given the cost of legal battles in India, if the value of the asset in question is less than the estimated cost of the legal battle that the heir would have to fight to get it, the heir may well leave the asset with the nominee. Some assets, such as a car, depreciate with time. Therefore, by the time the actual heir is able to get the asset from the nominee the asset's money or utility value may well have dropped drastically. Case II - When a person dies intestateLet us assume that you have not written a will then in case of your death (which will be termed 'intestate' i.e. without a Will) your assets will be distributed among your heirs as determined by the succession laws of the country as applicable to you. Succession laws vary depending on the religion of the person who has passed away. Normally, the laws classify family members as class I, II or III heirs and the wealth of the deceased is distributed by the court among these. Class I heirs get the first preference and so on. For example, in case of a Hindu male who passes away intestate, the class I heirs include mother, wife, children, son of predeceased son and so on. However, father is not the immediate legal heir of a Hindu male. Thus, if there are no class I heirs of a Hindu male, only then the father will be eligible to receive the assets of his son.Also Read: How Hindu male assets are divided without a willIn the above case too, if the nominee of an asset of the deceased is different from the legal heir of that asset as determined by succession laws, then the latter may have to fight a legal battle to get the asset from the nominee. This would happen if the nominee does not want to transfer the ownership of the asset to the legal heir. A nominee may not want to give up ownership of the asset for multiple reasons-one being that the nominee may feel that they 'should' have inherited the asset in any case.As per Hindu succession law, every legal heir of the same class (e.g say all Class I heirs) has equal right on every asset of the deceased if there is no Will. The bank will, normally, pay the money to the nominee and he/she will be required to transfer it to the legal heirs as per their entitlement.Let us assume you have nominated your son in one of your bank FDs. In the event of your demise, the bank will pay the amount to your son as he is the nominee. However, he will be required to share the money with other legal heirs to the extent they are entitled to receive the money as per succession laws i.e., with your spouse, and your other children. If he does not give their share to them, then they can go to court demanding their legal right.Case III - Special casesIn case of certain assets such as Employees' Provident Fund (EPF), Employees' Pension Scheme (EPS) and Gratuity, only defined 'family' members can be nominated by the person. A person cannot bequeath money from EPF, EPS and gratuity to anybody other than those defined 'family' members in the Will. If there is a mismatch i.e., the money is bequeathed to any other person (other than the defined 'family' member) in the will, then in such a case nomination takes precedence over the will. This would mean that beneficiary under the Will would not get the money and the nominee will be entitled to keep the money with him/herself. Click here to read: Who gets your EPF money is already decided.What you should doThe point is, you should make the process of transmission of an asset after your demise smooth so that the person you want to leave it to actually gets it easily and in a reasonable time. Of course, you also avoid leaving behind legal wrangles and disharmony among your near and dear ones.Therefore, it would be wise to ensure that your nominations for various assets are in line with your Will or applicable succession laws. Further, legal experts recommend that at the time of making a will, an individual should mention the reason for bequeathing a particular asset to a particular beneficiary. This specifies the intent of an individual which will help in avoiding legal disputes at the time of claiming assets. If you are bequeathing assets to a minor, make sure that the guardian appointed has high morals and is able to ensure that the money is passed on to the minor child once he/she comes of age. Sometimes it is seen that the person appointed to oversee the transfer of assets after an individual's death does not do the same, leaving legal heirs to fight a legal battle in court.Not making a nomination in financial assets can create more problems in claiming money for the legal heirs. As per ET Wealth's estimate, Rs 82,000 crore is lying in unclaimed bank accounts, life insurance, mutual funds etc. Also Read: Rs 82,000 crore lying unclaimed in banks, mutual funds: How to claim yoursIf there is no nominee, then the process of claiming money by the legal heirs is quite difficult as a financial institution can demand various documents such as succession certificate, indemnity bond etc. before the money is disbursed. It can happen that in some cases the money to be claimed is less than the cost of acquiring these documents which could make the effort unviable.Also Read: Father is not the immediate legal heir of Hindu male Also Read: When is husband not legal heir of wife?