scorecardresearchYour Questions Answered: Opening account for minor, safety net for same

Your Questions Answered: Opening account for minor, safety net for same sex couple & estate planning for senior citizens

Updated: 03 Jul 2022, 09:29 AM IST

We answers some of your most pressing personal finance questions. It is time to make the most of your money!

Your Questions Answered: Opening bank account for minor, creating safety net for same sex couple and estate planning for senior citizens

Your Questions Answered: Opening bank account for minor, creating safety net for same sex couple and estate planning for senior citizens

Q1. I am a young father, and my child is 6 years old. I want to teach him about finances early. Can I open a minor bank account for him, to help him learn about basic finances? 

One of the greatest gifts you can give your child is to help him become a responsible, empowered adult. When you open a bank account for your child, you are taking the first step towards making him familiar with money and banking. This will help build a healthy savings habit in him.

Most banks will allow you to open a bank account for your son/daughter. An account for child who is less than 18 years of age is called a “minor” account. You can operate the account on behalf of the child. Your bank may also provide a debit card to your son after he crosses the age of 10. These debit cards have a spend limit of 5000. After he turns 12, the bank may allow him to operate the account independently.

The account will be converted into a normal savings account once your child turns 18. Unless you are a joint holder, you will no longer be able to operate the account.

You can issue a cheque in the name of your child to start the account. After that you can make deposits via cheques or net banking transfers. Easiest would be to set up a standing instruction for regular transfers of a specific amount from your account to his account.

Please involve your child in all transactions. Show him how a cheque is to be written. Demonstrate how a debit card can be used to withdraw money from an ATM. This will also be a good opportunity to start teaching how one needs to be careful while using such instruments.

When you open the account for your child, make sure you are clear about all requirements, like the minimum balance. If you club the account with existing family accounts, can you avoid charges for non-maintenance of minimum balance? Double check the transaction limit on the debit card. Some banks offer incentives like discounts on edutainment, books, or shopping. Make sure you avail of these.

READ MORE: How can you build a corpus for your child’s higher studies?

Q2. We are a same-sex couple, with no kids. We are nearing 40 and want to start building up a safety net for us. Where do we start? 

In 2018, the Supreme Court decriminalised homosexuality. While it gave the individuals the freedom to come out to society, financial safety and freedom remain a question mark as same-sex marriages have not yet been legalised in India. While this denies you the benefits of being a “couple” legally, as a member of LGBTQIA+ community, you should be aware of your rights about bank accounts and financial investments.

You can open a joint bank account with your partner if both are KYC compliant and are able to provide the documents required by the bank. You can also apply for a debit card and a credit card if you meet the eligibility criteria.

Mutual Funds also accept investments without any discrimination, and you may invest jointly. For operational convenience, keep the mode of operation as “either or survivor.”

When you obtain an insurance policy, you can appoint your partner as the nominee. However, it is important to mention this in your will also.

Since you are both nearing 40, start by making regular investments and follow a disciplined approach. You may make lumpsum investments. Or you may make periodical investments through systematic investment plans (SIP) or systematic transfer plans (STP).

Your financial advisor can suggest the best options depending on your situation and your needs.

Undergo the primary exercise of financial planning. Attach investments to specific life goals.

Prudent asset allocation is very important. Your advisor will consider your and your partner’s risk appetite, time horizon available for investments and your requirements. Choose the right mix of debt, equity, and other instruments. This will balance the portfolio and help mitigate risk. Review your portfolio regularly to ensure it is not skewed towards a certain asset class.

If you want to appoint your partner as your nominee, it is important to make a will. Your financial advisor will be able to recommend an expert in will and estate planning to help you.

READ MORE: What’s better: A credit card or debit card?

Q3. We are a same-sex couple, and I am the sole bread-earner of the family. Can I give my partner a supplementary debit card linked to my bank account and an add-on credit card? 

The Reserve Bank of India (RBI) does not discriminate when it comes to opening a bank account. If you want to give to your partner a debit card, open a joint account with your partner. The secondary holder can then have a debit card linked to the same joint account. Please note that the second debit card may attract a certain annual fee.

According to section 2(41) of the Income Tax Act, 1961, a “relative, in relation to an individual, means the husband, wife, brother or sister, or any lineal ascendant or descendant of the individual.” Section 56(2) defines a spouse as “husband” or “wife”. While homosexuality has been decriminalized, there is still no clarity on same-sex marriages, as the same is not yet legalised. Therefore, the status of the partner in a same-sex relationship is not clear.

To obtain a credit card, one needs to comply with the bank’s Know Your Customer (KYC) requirements and provide certain income documents. Eligibility is usually determined based on one’s income and credit history (credit score).

When a family member does not have any income or has got a job for the first time, an existing card holder can help them with an add-on card. This is issued against a primary credit card to a relative of the primary card holder.

This is where the definition of a relative becomes important. For issuing an add-on credit card, the relative is usually a spouse, child, sibling, parent, parent-in-law, sister-in-law, brother-in-law, son-in-law, or daughter-in-law. As same-sex marriages are not recognised, your partner cannot be considered your “relative” and, hence, cannot get an add-on card.

However, some credit card companies issue a credit card against fixed deposits (FD), which makes it a secured credit card. Generally, card issuers offer 75% to 85% of the FD amount as the credit limit.

READ MORE: Have you bought an Insurance policy for your dog?

Q4. I am 68 years old, and my wife is a home maker. We have two sons, both well-educated and well-settled in their professions. In addition, we also have two dogs, whom we love as our family. How important is estate planning and will making?

A will is a legal document that specifies the final wishes of an individual regarding distribution of the assets after their lifetime. It is a way of succession planning to ensure that the assets (financial and others) can be passed on to the family member or nominee without any dispute at the time of property distribution.

In India, there are 3 main succession laws; the Hindu Succession Act, 1956 that applies to Hindus, Jains, Buddhists, and Sikhs; the Indian Succession Act, 1925, that applies to Christians, Parsis and Jews; and the Muslim Law that applies to Muslims. In case of the demise of a male family member without a will, the assets are divided as per the succession act that applies to the person. Generally, the assets are divided equally among the immediate legal heirs. If there is no immediate legal heir, the assets are passed onto other relatives per the applicable act/law.

Many individuals do not create a will as it is assumed that the assets will be inherited by one’s inheritors known as legatees. Many times, we appoint a nominee for assets like bank accounts, mutual funds, or other investments. However, when there is no will, legal heirs can challenge this nomination.

In legal terms, a nominee is just a trustee of the financial asset. A beneficiary is a person entitled to the financial asset under the will and legal heir as per the law of succession. If the will is signed and executed, it will supersede the claims of both nominees and legal heirs.

Writing and registering a will ensures the financial safety of your near and dear ones. A will also helps to pre-empt family disputes and avoid lengthy, cumbersome processes to get one’s inheritance. A will ensures that your assets will go to those you love, your rightful heirs.

Since you also have two dogs, you can nominate your pets to be your beneficiaries. You can nominate a trustworthy friend or family member as their guardian and leave the funds to that person so that they can take care of your beloved pets.

Not just the family and loved ones, you can leave a legacy to support a cause, too. After your lifetime, you can choose to leave some funds to a cause that you believe in. This gives you a chance to create a positive impact on society even in your absence.

Most importantly, making a will gives you peace of mind and stress-free days, without having to worry about your loved ones after you move on. It is not mandatory to register a will, but it is wise to do so. And, unlike what most people believe, it is not a complicated process.

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First Published: 03 Jul 2022, 09:29 AM IST