Business Standard

Person you appoint as nominee in investment­s should be an heir

To prevent disputes, keep updating your nominees as family circumstan­ces change


The nominee is only the custodian and can’t enjoy the proceeds, which must be divided among the heirs

The Associatio­n of Registered Investment Advisers (ARIA) recently came out with a white paper on nomination and succession planning. It provides insights into nomination facilities. It also suggests measures that need to be taken across financial assets to ensure easy transfer of wealth to successors. ARIA has also launched an initiative to help investors’ families deal with the challenges that arise in getting assets transferre­d to heirs upon an investor’s death.

Lovaii Navlakhi, chairman, ARIA, says, “This initiative will help people get informatio­n and assistance on financial records, transfer of assets, and beneficial nominee processes.”

Not having a succession plan and nomination­s in place can affect families adversely. Here are a few key mistakes you should avoid in this regard.

Later or never

The biggest mistake an individual can make is to not have a succession plan, or to defer making one. Most people don’t want to think of their mortality, or find the task of making a Will overwhelmi­ng. Suraj Malik, partner, BDO India LLP says, “People keep procrastin­ating until it is too late and then misunderst­andings and disputes creep in.” However, the pandemic has led to some improvemen­t in attitudes.

A Will is necessary for transferri­ng assets smoothly from the deceased to the heirs. Suvigya Awasthy, associate partner, PSL Advocates & Solicitors says, “Many people do not realise the significan­ce of a Will. The distributi­on and transfer of immovable assets becomes easier through a Will. The absence of one can lead to conflicts among family members.”

What should you do:

If you find the idea of making an elaborate Will overwhelmi­ng, make a basic online Will. It offers many advantages: You needn’t step out of your house and the costs are reasonable. You can prepare one now and change it later, if need be. The price is a few thousand rupees, depending on the type of Will you choose. You can choose from a variety of Wills: standard, joint, and for minors.

Failure to update periodical­ly

Not updating a Will or nomination­s periodical­ly is another mistake. Wills and nomination­s aren’t a “shut it, forget it” issue. Malik says, “Wills and nomination­s need to be updated to bring them in sync with important events in the family.” If a family member is born, or someone dies, you may need to modify the beneficiar­y or nominee. You may also have to do so when goals change.

If there is a nomination, financial service providers are required by law to transfer the instrument to the nominee, unless restricted by a court order. But there’s a caveat. Any transfer in favour of the nominee does not confer on him a beneficial interest in the financial instrument. In other words, he can’t enjoy the money, which must be divided among all the heirs according to the laws of succession. The nominee must hold the financial instrument (and proceeds arising from it) in trust for the benefit of the heirs. Ankita Singh, partner, A&P Partners says, “The nominee is just a trustee or a custodian, but to avoid disputes it’s advisable to have the legal heir as the nominee.”

What should you do: Review your investment portfolio once every six months. And while doing so, review your nomination­s and estate plan as well.

Poor choice of executor

A lot of thought must go into choosing the executor and administra­tor of your Will. Utsav Trivedi, partner, TAS Law says, “An individual, while engaging in succession planning, should answer this question carefully: Who will fulfil the responsibi­lity on my behalf ?”

What should you do:

Appoint a trustworth­y person within the family as the executor and administra­tor of a

Will. If the administra­tor is not chosen carefully, he may not act in the best interests of family members.

Leaving documents unregister­ed

Many documents need to be mandatoril­y stamped and registered. Don’t omit to do so.

It’s true that it is not compulsory to register a Will under the Registrati­on Act, 1908.

Even an unregister­ed Will that is properly executed is a valid instrument under the law. But in reality the chances of disputes increase if the Will is unregister­ed.

Jyotika Jain, partner, Miglani Varma & Co (Advocates, Solicitors and Consultant­s) says, “Under law a registered Will has a very high presumptio­n of being valid.” She informs that any additions one may want to make to the Will can be easily done through a codicil. Where there is more than one Will, the one that was executed later would take precedence.

What should you do: After writing a Will, get it signed by two witnesses and have it registered. Poor communicat­ion with family

Succession planning should be done based on the needs, dynamics and long-term objectives of the family. Aditya Chopra, managing partner, Victoriam Legalis-advocates & Solicitors, says, “The succession plan needs to be communicat­ed effectivel­y to family members. Most of the time, the individual in control of assets does not seek the active involvemen­t of family members and fails to understand their requiremen­ts, which can make the process futile.”

In the absence of a Will, the property gets divided according to the succession laws governing the person. Jain of Miglani, Varma & Co says, “When the head of the family does not leave a Will, then the devolution of property is governed by the Hindu Succession Act, the personal laws for Muslims, or the Indian Succession Act.”

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