Importance Of Successive Nomination During The Pandemic

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Marzee Kerawala is a Certified Financial Planner with expertise in Income Tax and Investment products. Managing assets worth over Rs. 4 Billion, his firm ‘NiveshIndia’, designs Tailored Investment Strategy through Customised Financial Planning for individuals and NRIs, and also handles Treasury Management for corporates and SMEs. You can contact him at +91 9987567667 or Email: marzeek@niveshindia.co.in [Website is www.niveshindia.in]

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The second wave of COVID 19 has hit us all hard and fast. We have lost a number of friends and relatives to this deadly virus. Over the past few months, our office has witnessed an increase in ‘Transmission Cases’ – a process where investments held by the deceased, are transferred either to the joint holder/s or nominee/s or the legal heirs of the deceased – as the case may be. In one such case, an old couple expired together in the same hospital, within a span of 15 days. Since they had nominated each other in their bank accounts and SCSS (Senior Citizen Savings Scheme), the transmission procedure became complicated, in the absence of a valid WILL. 

Nominee or Legal Heir? A nominee is a person who would need to carry out transmission procedure and receive the investment on the death of the holder. However, a legal heir is the real beneficiary of the deceased person, under his WILL, or as per the succession laws. Normally, we suggest that one should nominate their own spouse/children – the actual beneficiaries in all the investments. But, at times, the nominees could be different than legal heirs. 

When nominee and legal heir are separate persons, the nominee is only the guardian or caretaker of the investments and is duty bound to receive the assets from the company and transfer it to legal heirs. Normally, banks and other financial institutions offer nomination facilities for their customers. But till date there is no provision for successive nomination, like in case of a Life Insurance Policy. There are various types of nomination facilities available.

1. Single Nomination: In this type of nomination only one person is nominated who receives 100% of the claim in case of death of the holder. We see such type of nomination being made in majority of cases. 
2. Joint or Multiple Nomination: In case of a joint nomination, more than one person and maximum of three people can be nominated and are allocated fixed percentage share of the investment. Eg: if you have two or three children and want to apportion the investments equally between them, you can nominate both of them 50% each or you can nominate all three and allocate 33% each. There is no restriction on the percentage allocation to each nominee, holder is free to decide the percentage as per his free will but sum total of the percentage should be 100.  In case of joint nominations, all the nominees shall have the right to claim the investment amount and the amount shall be based on the fixed percentage as mentioned at the time of nomination. 
3. Successive or Alternative Nomination: In some cases like the one I mentioned above, the holder and the nominee may die together maybe in a car accident or plane crash or may die in quick interval due to pandemic like situation. In such cases, the legal heirs will have a tough time and have to face lot of hardships and go through a tedious and cumbersome procedure of getting a succession certificate or legal heir certificate or the letter of administration, as the case may be. Successive nomination is a solution in such typical cases. Successive nomination works on following conditions in case of Life Insurance Policy.

1. After expiry of the life assured, the first nomination will become operative.
2. If at the time of the death of the policy holder, the 1st nominee is not alive, only then the 2nd nomination will become operative.
3. If at the time of death of the policy holder, both 1st and 2nd nominees are not alive, only then the 3rd nomination will become operative.

However, under current provisions successive nomination is not available in saving bank accounts, bank deposits, not even in bank lockers. At this moment even government schemes like SCSS (Senior Citizen Savings Scheme) and Public Provident Fund have only joint nomination facilities but not successive nomination. As a result, crores of rupees are lying unclaimed in post offices and government schemes like PPF, bank deposits and SCSS because of tedious and long procedure to get a succession certificate from the competent Authority. This unclaimed money is then transferred to Depositor Education and Awareness Fund (DEAF) like how shares and Mutual Funds are transferred to Investors Education and Protection Fund (IEPF). In my next article I shall explain the facts one should know about nomination in different investments.