scorecardresearchWhat happens when there is no nomination — it might be an expensive affair; All you need to know

What happens when there is no nomination — it might be an expensive affair; All you need to know

Updated: 23 Jan 2023, 08:10 AM IST
TL;DR.
Nomination is an essential process to ensure assets are transferred without trouble to the intended beneficiaries upon death or incapacity. Without a valid nomination, the process of transferring assets can become lengthy and tedious, resulting in delays and additional costs.
Whether you are dealing with financial instruments, legal documents like wills and trusts, or even insurance policies, a nomination is required to ensure that your assets reach those you intend. In this post, we will discuss the importance of nominations and what happens when no nomination is in place.

Whether you are dealing with financial instruments, legal documents like wills and trusts, or even insurance policies, a nomination is required to ensure that your assets reach those you intend. In this post, we will discuss the importance of nominations and what happens when no nomination is in place.

Wondering whom your parents have nominated for their savings and investments? It could be anyone – including you! Nominations weren’t always mandatory, so it is important to double-check if your and your parents’ accounts are up-to-date.

Sadly, many women face difficulties with their late husband’s accounts because they haven’t updated the nominee details. Make sure this doesn’t happen to your family by speaking openly about nominations.

But first, let us understand what a nomination is. Whether you are dealing with financial instruments, legal documents like wills and trusts, or even insurance policies, a nomination is required to ensure that your assets reach those you intend. In this post, we will discuss the importance of nominations and what happens when no nomination is in place.

READ MORE: Why you shouldn't ignore that 'nominee' section in your financial products

What is nomination?

Nomination is a process where you can name someone as a beneficiary for your assets. This could include anything from bank accounts, mutual funds, insurance policies, or even real estate properties. The nominee will then be entitled to receive any benefits or proceeds related to these assets in case of your death or incapacity. The nominee is then responsible for sharing the assets among the heirs.

Why is it important?

A valid nomination ensures that your assets are transferred without trouble to the intended beneficiaries upon death or incapacity.

It is important to note that the succession laws of the different assets will vary among shares, mutual funds and bank accounts, amongst others.

What happens if there is no nomination?

Without a valid nomination, the process of transferring these assets can become lengthy and tedious as it must go through legal procedures. This may also result in delays and additional costs, which could have been avoided if an existing nomination was already in place.

Also, the process will vary among the different financial institutions.

If there is no nomination present when an individual passes away or becomes incapacitated, then the assets’ ownership will be transferred according to their respective laws and regulations.

For instance, bank accounts and mutual funds will generally be transferred to the deceased’s legal heirs according to their respective succession laws.

“It has now become mandatory to ensure nomination in the mutual fund folios. However, there are a few old folios where nomination still needs to be done. In such cases, the transmission process becomes quite cumbersome. Also, the procedure varies from AMC to AMC and thus needs to be standardised,” says Prabin Agarwal, a Siliguri-based Certified Financial Planner.

In the absence of a nominee, legal heirs of the deceased would need to submit various documents to banks, financial institutions, insurance companies, etc., to get investments and assets transferred in their name.

READ MORE: Update nominee details in all your mutual funds with just one click on MFCentral; Here's how

The general step-by-step process includes:

1. Obtaining a succession certificate/letter of administration from the court.

2. Make an application (separate for each bank/financial institution)

3. Submit documents like Death certificate, affidavit, indemnity bond, NOCs (if applicable)”, says Gayatri Jagdale of Fund Matters, a SEBI-registered investment advisor.

Death certificate

The first thing you need to take care of is the death certificate. This document would be needed everywhere at all institutions, including banks, fund houses, and insurance companies.

This certificate serves as formal confirmation that the subject has passed away. Additionally, death certificates serve as official records of the time and date of death.

The death certificate is required regardless of the existence of a WILL or nominations.

Will

In the absence of a nomination, having a will could make things easier. However, the will needs to be registered. It is necessary to obtain a “Probate of Will” from the court, which attests to the validity of the will.

During this process, the court will send notices to the other heirs whose names the applicant has to share along with their addresses. The other heirs need to confirm that they don't have any objection.

It would help if you spoke to your lawyer regarding the same.

Succession certificate

In the absence of a will, banks and other financial institutions will ask for a succession certificate. However, it is important to understand that getting the succession certificate can take a lot of time.

A succession certificate is a document given by Indian courts to the legitimate heirs of a person who passed away intestate, or without leaving a will, and leaves behind debts and assets. All the legal heirs are required to get a succession certificate.

READ MORE: How to ensure that your insurance nominee gets a fair deal?

Indemnity bonds

Sometimes, indemnity bonds can be used instead of a succession certificate. This is typically used if the claim amount is less.

However, it is up to the bank to decide the amount. In simple language, the claimant can receive the disbursed amount up to that particular limit, however, if a legal heir comes forward to claim that amount, the claimant is bound by law to return back the money to the rightful heir.

Summing up, the nomination is a very small step that helps safeguard your family’s and loved ones’ future. Gayatri says, “Skipping this important step can become a major challenge for your family when you are not around. Make sure to do nomination(s) in all your investments and assets with a Will. Also, ensure to include the same name(s) of the nominee(s) as beneficiaries to avoid conflict. It will ensure hassle-free transfer of investments and assets.”

Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.
 

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First Published: 23 Jan 2023, 08:10 AM IST