Who is Nominee?
As per law, a nominee is a trustee, not the owner of the assets. In other words, a nominee is only a caretaker of the assets.
It Means
The nominee will only hold assets as a trustee and will be legally bound to transfer the assets to the legal heirs.
What is nomination and why it is important?
Nomination is a process whereby any person who is the owner of the assets, appoints one or more Person(s) as nominee(s) respectively who can receive the assets wherever nominated after the death of the owner.
Nomination is usually done solely for the purpose of simplifying the procedure for settlement of claims of the deceased and is an ideal tool to reduce hardships during the settlement of claims in the event of the death of the person who has done the nomination. Even it will ensure that the property does not remain unclaimed or become subject to litigation.
Important Things To Remember While Appointing A Nominee
- Mention the Full Name, Address, age, relationship with the nominee.
- Do not write the nomination in favour of wife and children as a class. i.e. I nominate my wife. Instead give their specific names and particulars existing at that moment.
- If the nominee is a minor, appoint a person who is a major as a guardian giving his full name, age, address and relationship to the nominee.
In the case of deposits with a bank the Reserve Bank of India (RBI) has clarified that upon the demise of an account holder, the nominee would receive the balance from the deceased’s account, to hold “as a trustee of the legal heirs of the deceased”, and that such payment by the bank shall not affect the right or claim of any person against the nominee.
With respect to mutual fund folios, on a cohesive reading of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, and the applicable forms, it can be understood that upon the demise of a mutual fund unit holder, the nominee will merely be holding it “in trust”, and the legal heir is free to make a claim over the folios against the nominee.
In 2016, the Bombay High Court laid to rest the position of a nominee versus a legal heir in relation to the shares of an Indian company. The Court held that a nomination does not in fact, override the laws of succession in India. A nomination is made with a view to ensure that the estate of the deceased is protected until such time the legal representatives of the deceased can take appropriate steps towards succeeding to such estate. Thus, the nominee of shares of an Indian company is not the legal owner of the shares and therefore, the legal heirs of the deceased shareholder would have a rightful claim over such shares.
In case of immovable property, the property can be transferred to the nominee but the actual ownership of the Immovable property clearly lay with the legal heirs of the deceased.
Are there any exceptions to this rule?
- In relation to succession of insurance proceeds, it should be noted that there was a relevant change in insurance law, in 2015, whereby the concept of a “beneficial nominee” was introduced.
- The change provides that if a policy holder names his parents, or spouse, or his children, or his spouse and children, or any of them, as the nominee, such person(s) shall not act as a mere caretaker or trustee but shall in fact be treated as the ultimate beneficiary of the monies payable by the insurer, to the exclusion of other legal heirs.
- However, it is not mandatory to nominate a beneficial nominee, and if the nominee is a person other than those specified above, the general rule would prevail, and such nominee would hold the monies as a caretaker / trustee for the legal heirs.
A Nominee and a Beneficial Nominee – what does it mean?
A nominee is just the receiver of the money. He has to eventually hand over the monies to the legal heirs. He himself cannot consume the money unless he is the legal heir. In case of death of the life assured, benefits are payable either to the nominee(s) where a valid nomination has been registered by the company or to the legal representatives who obtain representation to the estate of the policyholder or to such person(s) as directed by a court of competent jurisdiction in India.
A beneficial nominee is the end consumer of the money received under the insurance policy claim. Therefore, if you have made someone a beneficial nominee during the issuance of policy then in such case that beneficial nominee has the right to use money received during the claim settlement. Under the new Insurance act, Parents, Spouse and Children, if any one of them is the nominee in the policy, they automatically become the Beneficial Nominee and hence they can consume the monies too.