We Indians live in Future. We are more concerned to secure our future and future of our children. The savings rate in India is 35% which is much higher than world average. Gold & Property are 2 most popular investment modes. Whatever we earn during our life time, we assume and take it for granted that it will be passed on to our loved ones after our death. Unfortunately We are Wrong and Life is not that simple. It is very important to understand and ensure that after our death, our assets/funds are smoothly transferred to our loved ones without much hassle becoz Legal processes in India are too complex and time consuming therefore it is important to know the difference between Nomination and WILL.
On Personal Finance front, Most of the people normally get confused between Nomination and WILL. General misconception is that i have availed nomination facility for all my investments and i don’t need WILL. I would like to add in simple words that Nomination is only a Right to Receive & Hold the asset/funds Whereas WILL is the Right to Own assets/funds. WILL super-cedes not only Nomination but Indian Succession Acts like Hindu Succession Act. In case of Equity Shares, Nomination is the final Right to Receive, Hold and Own in the absence of WILL i.e. in case of equity shares, Nomination super-cedes the Indian Succession Act (In the absence of WILL).
To simplify, lets take example of Person A, He has a life insurance cover and he made his brother Nominee for his insurance policy. Unfortunately he died & in his WILL he expressed his desire to pass benefit of his Insurance policy to his wife (Legal Heir). In this case Insurance Provider will pay to the Nominee i.e. his brother. Nominee cannot use the funds received as he is only the Trustee of funds received but not the rightful owner of funds. In short, Nominee has right to receive and hold the funds but he does not own the funds. As per the WILL of the Person A, his brother will pass on the funds to the Legal Heir of the Person A as per his WILL i.e. Person A’s wife (Who has right to own). In case Person A has not left any WILL then the funds/assets will be distributed as per Indian Succession Acts.
Now next question arises why do i need Nomination, i will only make a WILL as WILL super-cedes Nomination. Answer is you need both Nomination and WILL for smooth transfer of your Assets/Funds. Transferring of Funds/Assets is basically a 2 step process
Step 1: Nomination ensure smooth transfer of funds from Bank or Financial Institution to the Nominee of deceased person’s account.
Step 2: WILL ensure smooth transfer of funds/assets to Legal Heir as per the wish of the person
Beneficiary in Step 1 and Step 2 can be same or different. Nomination ensure hassle free transfer of funds else your legal heirs have to go through super tedious process of providing Death Certificate, Proof of relation, Probate etc. Imagine, if investment of deceased person is with 10 different banks/financial institutions then the kind of efforts required. Its better to avail nomination facility for smooth transfer of funds to Nominee and then from Nominee to legal Heir through WILL. Hope i explained difference between Nomination and WILL in simplistic manner.
1. It is advisable to avail Nomination Facility for all the Financial Investments including Savings Account, Mutual Fund, FD’s etc.
2. Irrespective of you age, you should make your WILL as soon as possible. You can make a WILL even on plain paper and can change it as many times as you wish during your lifetime. In my next post, i will explain How to make a WILL?
3. In ideal Scenario and to avoid any legal dispute in future, You should Nominate and make a WILL in favor of same person only e.g. if you have a savings account & you wish your wife to be beneficiary of this account. In this case make your wife as Nominee of Savings account and in the WILL clearly mention that your wife will be beneficiary of funds in Savings Account.
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