COVID-19 impact on personal finances: Why everyone must execute a will despite having a nominee

Amitabh Tiwari & K Shankar
·5-min read

Daily more than 3,000 people are dying in India due to COVID-19. The second wave is deadlier than the first and we are also hearing of many young people succumbing to the disease. 

Life is packaged with risks and things can catch us unawares. In this pandemic era we need to tighten our personal finance matters and not postpone decisions relating to possibilities surrounding death. 

An individual often believes that once he/she has filled the nomination section of their investment then the nominee is automatically the owner of the underlying asset after the individual’s demise. 

However, this is not the case. Time and again Indian courts have ruled against this principle and thought process.

As per law, the nominee is only a custodian of the underlying asset. In other words, the nominee only has the right to represent on behalf of the owner and does not necessarily have any kind of entitlement over the asset. 

If something happens to the owner, then the nominee is legally bound to hand over the underlying asset to the legal heir and conduct all the necessary paperwork to effect the same. This rule is applicable to most of the financial assets.

The following table provides a snapshot of different financial assets and who will be considered as the eventual owner.

Asset / Investment Class

Eventual Ownership

Bank accounts / deposits

Legal Heir

Corporate deposits

Legal Heir

Employee Provident Fund

Nominee

House Property

Legal Heir

Shares / Demat a/cs

Legal Heir

Mutual Funds

Legal Heir

Public Provident Fund

Legal Heir

Insurance

Nominee in select cases

The only notable exclusion is with respect to EPF (Employer's Provident Fund) corpus wherein the nominee, even if not a legal heir has complete ownership of the corpus.

That means for all other assets like bank accounts (all kinds of accounts), property, demat accounts, mutual fund holdings, equity shares, PPF, corporate fixed deposits — the nominee acts like a custodian.   

Also often, an individual has a single nominee but has more than one legal heir. Especially in India, the individual feels obligated to assign / set aside a certain portion of his wealth to non-heirs (for example parents or distant relatives or for a social cause with whom he / she has been associated with).

To address this issue, it is very pertinent for an individual to write a will and specify the entitlement / ownership of quantum of assets for each of the legal heirs as well as any other individual to whom he wants to share his / her wealth with.  

This does not mean that nomination is unwarranted or wasteful exercise. If there is NO nominee then there is no way the organisation with whom the financial investment has been made will be able to hand over the underlying proceeds. 

Hence, the investee authority mandates the investor to have a nominee so that it can hand over the underlying financial asset.

In the absence of a nominee, the legal heir(s) need to furnish succession certificates, affidavits for each and every investment and to each and every entity with whom such investments / financial assets have been held. 

All of this can be avoided if there is a will that has been written by the individual.

The easiest and the most practical approach would be to have only legal heirs as nominees and also execute a will wherein the ownership / entitlement of each and every heir is mentioned clearly. 

If the individual wants to set aside certain asset(s) / amounts to certain non-heirs or particular entities, even then the same ideally be done through the will.

Writing a will is also a simple process. The individual first has to list down the various assets and to whom he / she wants to be the eventual owner of the respective assets. 

The list of assets should include all movable and immovable assets which have financial value. The individual is free to list non-financial assets too. The persons to whom he / she bequeaths the assets can be their heir(s) or a third party, but each and every person’s % share in terms of ownership should be clearly mentioned.

This document shall be considered as an executed will post the individual’s signature in the presence of two witnesses along with a doctor’s health certificate. These two witnesses should not be the beneficiary in the will. 

The witnesses and the certificate are required to prove that the signatory has written the will without any duress - both physical or mental. Such will can be written in a plain paper (not necessarily the legal one) and is also not necessarily to be registered at the sub-registrar office.

However, it is recommended for the individual to take a legal opinion and hire one especially if there is an anticipation of conflict in whatever manner, for example, infighting amongst heirs, ownership / structuring related issues etc. There can be issues if the individual and inheritor belong to different religions. There can be rifts due to different percentage shares, taxation issues, event related developments, among other things. 

While it is not necessarily an expensive monetary proposition to write a will, it does require a dedicated effort to prepare a will. Post the eventuality, the near and dear ones would really thank the individual for writing a will as it smoothens the entire process of handing over the proceeds as he / she had evinced.

If there is no will to refer to, then the process to get the assets transferred in the names of the legal owners is not only time consuming but also expensive as succession certificates, affidavits and other legal documents have to be produced to different authorities. 

It is not necessary to register a will, even where it relates to immovable property. The registration is optional, under Section 18 of the Registration Act, 1908. But, it is advisable to register a will as a registered will cannot be tampered with, mutilated, destroyed or stolen.

There is no stamp duty payable on registration of a will. However, you may have to pay a nominal registration fee, which varies across states. The individual preparing the will must be personally present at the Sub-registrar's office along with two witnesses.

Legal professionals may charge around Rs 4,000 to Rs 6,000, while experienced counsels may charge Rs 10,000 to Rs 15,000, as per Myadvo.in. 

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