While in Goa, Ronald received several reminders from banks and mutual funds about submitting his nomination details.
That set him thinking about it and he discovered that he would need to understand the law applicable to the asset in respect of which the nomination was filed.
BANK ACCOUNT
A nomination to a bank account (credit balances in savings and current accounts and fixed deposits) gives the nominee the right to receive the amount from the bank.
Currently, only one nominee is permitted in a bank account.
The right of a nominee to receive payment rises only after the death of the depositor in the case of a single account, and death of all depositors in the case of joint accounts.
The legal heirs would still be entitled to claim from the nominee the sum received by him, as the nominee is like a trustee or a custodian, and cannot be seen as a legatee. To avoid awkward situations, an account holder may be advised to make the nomination in the name of a person whom the account holder intends to receive the amount of the deposit on his demise.
(Section 45ZA of the Banking Regulation Act and Section 45QB of the Reserve Bank of India Act, 1934 and the Banking Companies (Nomination) Rules, 1985)
INSURANCE
A nomination facilitates the settlement of an insurance claim, and the nominee is to be paid the insured sum upon the death of the policy holder, though s/he may not be the legal heir.
The nominee holds the proceeds in trust and the legal heir can claim the money.
A policy holder can appoint more than one nominee and specify their shares in the policy proceeds; in the case of life insurance, the nominee has to be a person who has an insurable interest in the life of the policy holder, usually a family member.
(Section 39 of the Insurance Act, 1938)
MUTUAL FUNDS
A unit-holder has the option to nominate a person in whom the units, held by him will vest, in the event of his death. If the units are held by more than one person jointly, the joint unit-holders may together nominate a person in whom all rights in the units shall vest in the event of the death of all the joint unit-holders.
Nomination in mutual funds is at folio levels and all the units in the folio will be transferred to the nominee/s.
(Regulation 29A and Fourth Schedule of the SEBI (Mutual Funds) Regulations)
PROVIDENT FUND
The payment of accumulation of the deceased member is to be made in accordance with the valid nomination. If there is no nomination, the amount is to be paid to the members of the family in equal shares.
(Paragraphs 61 and 70 of the Employees Provident Fund Scheme, 1952)
GRATUITY
The gratuity amount will be paid to the nominee in the event of the death of the employee, but this would be subject to the rights of the legal heirs of the employee.
(Section 6 of the Payment of Gratuity Act, 1972)
PUBLIC PROVIDENT FUND
In the case of the death of the subscriber, if there is a valid nomination, the amount standing to the credit of the subscriber will be paid to his nominee.
(Paragraph 14 of the Public Provident Fund Scheme, 2019).
GOVERNMENT SECURITIES
Nomination is permitted in respect of government securities and does not preclude legal heirs from staking their claim on the nominees.
(Section 9 of the Government Securities Act 2006)
SHARES & DEBENTURES
If the nomination is made under the procedure prescribed by law, the shares/debentures will vest in the nominee on the death of the holders.
(Section 72 of the Companies Act, 2013 and Rule 19 of the Companies (Share Capital and Debentures) Rules, 2014)
NOMINATION VIS-À-VIS WILLS
Ronald learnt that the purpose of a nomination was to ensure that upon the death of the holder, the asset should not remain with the company, bank or financial institution, but should be received by a person trusted by the holder, and who can help in the process of passing it on to the legal heirs.
If there is no nomination, the legal heirs will have to go through a lengthy process for the asset/money to be received by him/her. A will decides who will eventually own the asset. In case there is no will, the applicable succession law will determine the heirs.
Ronald learnt that the following information was required for any nomination:
Nominee’s full name, address and age, and his/her relationship with you
Specific details of each nominee and the share(s) in which you would like the asset to be received by them
If the nominee is a minor, state the complete details of a person who is a major as an appointee
He also learnt the significance of updating nominations, particularly after major life events like marriage, birth or adoption of children or divorce.
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