Ensure smooth transfer of assets

To ensure that the nominee becomes the account's beneficial owner in the absence of a Will would require laws to be changed

Did you know that you can’t have more than one nominee for a bank account?

Did you know that on the account holder’s death, even this nominee can only hold the money in trust for the legal heirs, as determined by the Will, and if there is no Will, then by the personal succession laws governing the deceased?

Did you know that if the nominee in a life insurance policy is a parent, spouse or child, and there is no Will, then she/he can inherit the amount beneficially without being accountable to the other legal heirs determined under personal succession law?

Don't conclude that banks have unfriendly nomination and succession laws compared to life insurers. The banking industry’s nomination laws were introduced in 1984. Few Indians had bank accounts then and allowing nomination (even if restricted to one nominee) was a great innovation to provide the nominee immediate access to the money. The insurance industry’s nomination laws were legislated in 2015. They reflect the need to provide finality of benefit to the chosen nominee when there is no Will.

The processes governing nomination and succession need a reset, as is evident from the unclaimed assets of Indians, which stood at more than Rs 5 lakh crore even before the pandemic.

My colleagues and I at ARIA (Association of Registered Investment Advisers, a Section 8 not-for-profit company) provided inputs for a white paper titled “Reimagining nominations – making succession smoother and simpler” written by Pramod Rao, group general counsel, ICICI Bank. K V Kamath wrote the foreword and released this white paper (available on this link).

It makes a case for changes in the whole nomination process so that, one, nominees can get final access to the asset without having to go through a court process later; two, the financial institution gets discharged from its liability to the deceased asset holder; and three, the judicial system does not get overburdened further.

Most of the suggested changes don’t require any change in law. Some of the key ones are: Having a uniform or simple process to check and change nominations; not allowing new accounts without nominations; requiring existing accounts to compulsorily have nominations within a specified time frame; allowing e-nominations and e-KYC of the nominee(s) at any time; allowing any number of nominees; allowing security-wise nomination; allowing percentage allocation to nominees; allowing successive nomination, like first the spouse, but if spouse is not alive, then the child; nominations to be effective even when the holder is incapacitated; and allowing minors to be nominees without requiring a guardian.

On succession, several measures have been suggested, such as the demise should be reported centrally, institutions should reach out after such reporting, and forms and processes should be common across players.

One area that will require changes in the law is adoption of the life insurance model of nomination, where the nominee becomes the account’s beneficial owner when there is no Will. The large unclaimed funds lying with the various regulators and central ministries can be used to spread awareness about the benefits of nomination.

The pandemic has brought us face-to-face with our mortality. The regulators and financial institutions have already rung in quite a few changes and are favourably inclined to suggestions. The white paper will hopefully spur them to bring in the other required changes. 

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor