Financial Planning: Why a 'will' is necessary and more important than having a nominee for your wealth? See here

Financial Planning: As we get closer to the December 31, 2023, deadline for selecting nominees for our financial accounts, it's important to clear up a common misunderstanding that often confuses people. It is necessary to have a will even more than a nominee.

In India, we are familiar with the nomination process for demat accounts, fixed deposits (FDs), bank accounts, and mutual fund (MF) investments. However, there's a widespread misunderstanding that naming someone as a nominee means they automatically inherit your assets. This isn't the case under Indian law. A nominee is more like a custodian of the assets, not a legal heir. To guarantee the rightful transfer of funds/assets to their intended owner, having a legally-valid will is crucial.

What is a nominee?

Nomination is a crucial aspect of India's financial system. It simplifies the process of transferring assets by clearly stating the account holder's wishes. Without a nominee, the heirs may face delays and complications when accessing the assets. Nomination ensures that in case of the account holder's passing, the assets are safeguarded and can be smoothly passed on to the rightful heirs.

Regularly updating the nomination is essential, especially when there are changes in one's life or the nominee's situation. For instance, after marriage or divorce, it's important to update nominations by adding or removing a spouse or ex-spouse. Similarly, if a nominated individual passes away or becomes unable to fulfill the role, a new nominee should be designated.

What role does a nominee have?

A nominee, whether for a demat account, bank account, FD, or MF, has a specific role. They act as custodians of the assets until they are rightfully transferred to the heirs. This difference becomes crucial when there are legal heirs involved or when someone wants to distribute assets differently from what the nomination form states.

It's important to understand that a nominee doesn't inherit the assets or have legal ownership; their role is that of an intermediary in the process. Legal heirs encompass spouses, children, and other close relatives, potentially including parents. These legal heirs possess an equal entitlement to the assets of the deceased, and the nomination does not override this legal right. In cases of conflicting claims, the legal heirs recognised by law will take precedence.

What is a 'will'?

A will, often referred to as the "last will," is a legally binding document that states the desired distribution of a person's assets following their demise. In contrast to a nomination, a will offers precise instructions for the allocation of assets.

Benefits of having a will

Furthermore, a will facilitates the appointment of an executor who will oversee the asset distribution, guaranteeing the faithful execution of the deceased's intentions. By integrating a nomination with a thoughtfully drafted will, individuals can enjoy the assurance that their assets will be administered and distributed in accordance with their preferences.

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