Know why nomination does not secure inheritance

All of us work, save, and invest to take care of our future financial requirements, and want to bequeath the rest to our loved ones or intended beneficiaries after our time on earth is over.

In the process of creating wealth, many of us do not pay attention to ensuring that the assets go to those it is meant for.

Two of these tools, wills, and nominations, serve distinct yet complementary roles in personal financial planning.

This guide aims to clarify these concepts, emphasizing their importance and offering practical advice to ensure your assets and loved ones are protected according to your wishes.

What is a will?

A will is a comprehensive document that specifies how your assets, including both real and personal property, should be distributed after your death.

It is a testamentary declaration that not only outlines who receives your assets but can also specify guardians for minors and instructions for the management of your assets.

Contrary to common misconceptions, a will covers more than just real estate—it encompasses all your possessions and investments.

The Indian Succession A of 1925 provides the legal framework for wills, ensuring that your final wishes are honoured, irrespective of your religious or cultural background.

The execution of a will involves appointing an executor, a trusted individual responsible for administering your assets as per your directives.

Nomination: A Tool for Immediate Asset Transfer

While a will outlines the distribution of your assets posthumously, a nomination serves as a mechanism for the immediate transfer of certain assets upon your demise.

Nominations are particularly relevant for financial products like insurance policies and bank accounts.

A nominee is designated by you to receive the proceeds of these accounts directly from the institution, bypassing the longer legal process typically associated with will execution.

However, it's crucial to understand that a nominee is essentially a caretaker of the asset until it is legally transferred to the rightful heirs as identified in the will or by law.

The Supreme Court recently observed that the nomination process did not override the succession laws.

There have been similar observations too by other courts which, in effect, means a nominee holds assets/shares/deposits in a fiduciary capacity and is answerable to all claims made under the succession law.

The Distinction Between Wills and Nominations

• Scope and Application: A will encompass all your assets and provide detailed instructions for their distribution. In contrast, a nomination pertains only to specific assets like insurance policies, bank accounts, and certain investments.

• Legal Effect: The instructions in a will take precedence over nominations in the event of any discrepancies. While a nominee may initially receive the asset, the distribution must ultimately align with the will's terms or the legal heirship structure in its absence.

• Flexibility and Revocability: Both wills and nominations offer flexibility; they can be updated or changed as your personal circumstances or preferences evolve.

• Immediate Access vs. Probate Process: Nominations allow for immediate access to certain assets, providing financial support to nominees without the wait associated with the probate process. A will, however, may require validation through a legal process before assets are distributed according to its terms.

Preparing A Will

• Comprehensive Inventory: Begin with a detailed inventory of your assets to ensure your will covers everything you own.

• Selecting an Executor: Choose someone reliable and capable of managing the estate according to your wishes.

• Guardianship: If you have dependents under legal age, appointing a guardian is crucial for their care and management of their inheritance.

• Regular Updates: Life events such as marriage, the birth of children, or the acquisition of new assets necessitate updates to your will to reflect your current wishes.

Nominations simplify the process of transferring specific assets to your intended recipients, ensuring they have immediate financial support.

It's a simple yet effective way to manage certain aspects of your estate, complementing the broader directives outlined in your will.

Integrate Wills and Nominations into Your Succession Plan

Understanding and utilising both wills and nominations are fundamental to a holistic estate planning strategy.

A well-crafted will ensures your assets are distributed according to your precise wishes, while nominations provide immediate support to your loved ones.

Together, they form a comprehensive approach to legacy planning, ensuring that your financial and personal affairs are in order, offering peace of mind to both you and your beneficiaries.

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