Ways of doing Succession Planning
we will be discussing about different ways of doing succession planning .
Nomination-
A nominee is the trustee of your assets, to whom the bank or any financial institution (mutual fund, insurance company and so on) will transfer your funds in case of your death.
Often, individuals think that nominees are their legal heir. But actually that is not true.
The owner of your assets will be your legal heir as per your Will, or if you have died intestate (i.e. in the absence of a Will the transmission would be as per the India’s succession law.
Beneficiary in case of different assets –
Financial assets
a) For most financial assets (such as mutual fund investments, bank accounts and so on), a nominee is not compulsorily or necessarily the beneficiary, but only a trustee responsible for distributing the assets to your legal heirs as per the Will or succession laws.
b) For some financial assets such shares, the nominee can be the owner of the assets after your death and not the legal heirs. For E.P.F.(Employees Provident Fund) it is the nominee and not the person stated in the will, who inherits the amount. In fact, according to the rules, you cannot nominate any person other than a family member to your EPF account, unless you do not have a family at all.
Insurance
a) There are different categories of nominees in case if insurance.
b) A category called ‘beneficial nominee’ wherein if you nominate someone as your beneficial nominee, such nominee, does not have to share insurance money with other legal heir. A policyholder can appoint multiple ‘beneficial nominee’ mentioning their share.
c) Another category ‘collector nominee’ is also there wherein the person mentioned will simply receive money from insurance company and facilitate the transmission to legal heir which may happen based on succession laws.
d) A nominee has a right to claim money even at maturity in case insured person survived the term of insurance but dies before claiming the maturity benefits.
Property
a) The nominee may not be the ultimate beneficiary of the assets but may be required to pass them to the legal heirs.
In cases where the nominee is not willing to pass the asset(s) to the legal heirs, can be taken to the court. The legal heirs then would need to backup their claims by producing a succession certificate or a probated/registered Will.
b) So, in order to transmit your assets to your loved ones smoothly, you should nominate your intended beneficiaries only as nominees to avoid confusion and also make a Will and state the name of your beneficiaries for every asset in a clear manner in your Will.
In the absence of this, someone else can make claim on your assets and your family might have to go through time consuming, exhaustive and costly legal procedures to get possession of assets which are rightfully theirs and may result in a lot of fighting at the time of distribution of assets.
Nomination vs. Assignment
a) In case of a life insurance policy making nominees is restricted to immediate family members such as spouse, parents and children as the ultimate beneficiary so that the insurance money can go to the intended recipient.
b) Nomination is a right given to the policyholder to appoint person(s) to receive the money in case of a demise of the holder. One can appoint multiple individuals as nominees and can also specify their shares of the policy proceeds in percentage terms.
c) In case of an assignment of a life insurance policy, the nomination automatically stands cancelled.
d) An assignment of the policy automatically transfers the right of the policyholder (assignor) and his/her nominee to receive the sum assured on death of the policyholder or on maturity of the policy to the assignee.
e) Assignment must be in writing and a notice to that effect must be given to the insurer. But the catch is that once the assignment has been done, it cannot be revoked.
After assignment, the assignee will be eligible to receive the proceeds from the policy, and not you, even if you survive the tenure, (unlike nomination).
f) The assignment of life insurance policies can also be used as collateral while taking a loan. If an insurance policy is assigned to the lending bank and the policy holder expires during the tenure, the insurance company shall pay the outstanding loan amount to the bank and the remainder (if any) will be paid to the legal heirs of the policy holder.
In this case, if the holder survives the tenure, the bank will reassign the policy back to him/her .
Transfer of property & Mutation
• Transfer of property refers to the process of shifting the title of the property from one person to another.
• Both movable and immovable properties can be transferred.
• Property can be transferred through various means like sale or under a will..
• Once the transfer is done, the new owners must do mutation which simply means getting the immovable property registered in his/ her name in the records of the municipal corporation or land revenue department .