Have you registered a nominee for your bank account? Nomination helps in easy settlement of claim of deceased depositor(s)
Every time one fills up a form for an investment, whether it’s a Fixed Deposit or a Mutual Fund or even if they are opening a new bank account, there will be a separate section that will ask about a ‘nominee’. This seemingly harmless column is often left blank by a lot of people who are investing or opening an account. However, this causes a lot of issues.
Let us refer to a situation where, Mr A, a successful businessman died leaving behind his wife Mrs N and daughter aged 10 years. His wife, a homemaker had no clue either about her husband’s business or his investments. With great difficulty, she was able to trace the details of his Bank accounts and deposits. Mrs N did not face major problems in respect of deposits where Mr A had made nominations, as the formalities were simple and easy to comply with. However, Mr A had unintentionally not nominated anyone in his primary Bank account, where he did most of his transactions.
Mrs N’s ordeal to claim the money lying in her husband’s deposit accounts started when the bank official told her to submit a number of documents. Only if Mr A had nominated someone, Mrs N did not have to run from one place to another to get the many documents and certificates that the bank demanded settlement of her husband’s claims.
The above situation highlights the importance of nomination in investments and why all of us must make nominations whether it is a PPF, Life Insurance policy, Mutual Funds or Bank deposits.
What do you mean by nomination?
Nomination is a facility that enables a deposit account holder, investor in mutual fund/other financial instruments or safe deposit locker holder to appoint one or more persons, who can claim the proceeds of the deposit account after the death of the original depositor, investor or locker holder.
The benefit of nomination is that in the event of the death of an account holder, the Bank can pay the amount lying in the account of the deceased to the nominee without insisting for a Succession Certificate, Letter of Administration or Court Order.
Who can be a nominee?
A nominee is a person that you can list in your investment application or bank application as the person who can receive the proceeds of your account in case of your unexpected death. Your nominee can be anyone you deem to be your relative. This could mean any one of your parents, your spouse or your sibling. Some investments also allow you to list multiple nominees where you can even assign percentages of the money in your account. If the percentage is not listed, it will be shared equally.
Who can make a nomination?
All account holders having deposit accounts such as savings bank or term deposits in their individual names or in joint names can appoint a nominee to their accounts. A sole proprietor can appoint a nominee to the sole proprietorship account with the bank. In case of deposit accounts in the name of a minor, nomination can be made by a person lawfully entitled to act on his behalf. There cannot be more than one nominee in respect of a single/ joint deposit account.
One can nominate only one person in respect of bank accounts, unlike Mutual Funds or PPF where one can have more than one nominee. However, one has the option of nominating different persons for different accounts.
Can the nomination be amended?
Cancellation or variation in the nomination can be made at any time as long as the account is in force while following the applicable rules. Moreover, if the account is held in more than one name, all account holders need to sign on all the requisite forms.
Here are a few points to keep in mind when it comes to nomination of a bank account:
- Make sure you submit a nominee’s name when you open a new savings or fixed deposit account in a bank. In fact, today, most banks insist on a nominee at the time of opening the account.
- A nomination facility is only available for accounts opened in an individual capacity (single or joint accounts or sole proprietorship accounts). They are not available for a representative account.
- A new nomination can be added by the account holder during their lifetime. If the account holder has not made any nomination yet or has cancelled a nomination, he/she can simply add another nomination by filling up form DA1. The account holder’s details, account details and the nominee’s information have to be filled up in this form. This form requires details of all account holders.
- A nomination can be cancelled or deleted by the account owner anytime during their life. The account holder must fill up form DA2 in order to cancel the nomination. This form will require details of the account holder/s, the account, and the name and address of the nominee who is going to be cancelled. This form must be signed by all the account holders. To change the nominee DA3 form can be utilized.
- A minor can be a nominee. In this case, all the details of the legal guardian (who must be an adult) of the minor have to be mentioned in the nomination form. The legal guardian of the nominee will receive the amount on the minor’s behalf until the minor reaches the age of maturity.
- One account can only have one nominee.
- A nominee can only receive the funds from an account on death of the account holder and the death of all account holders in case of joint accounts.
- In most cases, a nominee is a legal heir of the account holder. However, it might not be the same in all cases. A nominee is a ‘trustee’ of the funds of the account holder. He/she is a custodian of the funds until the legal heir can legally claim them.
When an unexpected death happens, the money that lies in banks and as investments in the name of the deceased can be claimed by the legal heir of the deceased. Although this sounds simple on paper, it is a long drawn out process in real life.
You will need a host of documents, including death and succession certificates and sometimes, even a court order. The funds that belong to the deceased will be held by the bank until they get the requisite documents and the entire process can take weeks before you get the money. However, if you had been listed as a nominee, either when the account was being opened or later, the process is far quicker because the bank can release the funds to the nominee with far less paperwork.
Nomination facility is an ideal way to minimize the hardships of the legal heirs in settlement of claims expeditiously in the event of the death of the account holder. Though nomination is optional for bank customers and the facility is available on a voluntary basis, it would be wise if you nominate a person in all your investments to avoid unpleasant situations.