Nominee in your Investments: A nominee, Technically, is the person to whom custodianship of the asset is transferred, in the event asset holder’s death. Hence Nominee is NOT the ultimate beneficiary unless backed by a WILL, but a custodian (caretaker) in case if he/she doesn’t fall in the line of inheritance.
Ideally, the nominee and the legal heir are the same. But if they are different, the law depicts a nominee as only a trustee.
- For Mutual Funds & Life Insurance: – Nominee acts as a custodian & Eventually wealth will be distributed in accordance of WILL, in absence of WILL Indian Succession/ Inheritance Law kick in. Putting it simply, a WILL or Succession Certificate will supersede Nomination.
- But For your Shares (Demat Account) it acts differently: – in this, according to the Companies Act, the account’s nominee has the power to supersede the Will, thereby transferring the shareholdings to nominee’s Demat.
So technically, your Nomination in your Bank account / Investments will not necessarily decide the ultimate beneficiary & potentially can end up in a mess if the nominated person doesn’t fall in the line of inheritance/ succession. To make it watertight it should be backed by a will or to Further strengthen create Trust.
Besides, A WILL has to be probated to be treated sacrosanct. Hence Estate Planning ( Who should get what, when you are not there) is very IMP.
How do you do effective estate planning: Will or Creating Trust?
One can plan his estate in two ways i.e. either by writing a Will or by creating a Trust.
Writing a Will as we all know has been a traditional way of passing on all that a person has earned and what he has inherited from his ancestors to his future generations.
Trust has been used as a vehicle by many people in the past to pass on the wealth in a planned manner and over a period of time.
Ø A Will is a legal declaration of a person’s intention with respect to his property which he desires to be carried into effect after his death. Thus a Will operates only after the death of the person.
Ø A Trust involves transferring one’s estate to a trustee for the benefit of certain beneficiaries which may include the person creating the Trust who is called the Settlor. A Trust provides for management of the estate during one’s lifetime and also provides for distribution and management of one’s wealth post demise in a planned manner over a period of time.