Do you know what is common between Abraham Lincoln, Pablo Picasso and Agatha Christie from a financial planning or a personal finance perspective? – They all died intestate, i.e. died without writing a Will.
For those who are unfamiliar with a Will, it is an important document which captures the wishes of the person making the Will (referred to as testator) on how his/her estate (both immovable assets like property and financial assets like fixed deposits, shares, mutual funds, etc) should be distributed among the chosen beneficiaries after his/her death.
In my conversations with my clients, over the years, whenever I brought up the general topic of estate planning and specifically the topic of preparing a Will, I have received a couple of striking responses from many of them.
The resistance to make a Will
Firstly, most clients feel that a Will is not very important specifically for them as they don’t expect their children to fight over money as they have brought up their children well and with good morals and values.
Secondly, many clients also believe that they have taken care of their estate planning as they have provided nominations in all their bank accounts, fixed deposits, insurance policies, demat accounts and MF folios.
Why making a Will is important
While on the first point of bringing up children with values, all I can say is that it’s better to be safe than sorry especially since you will not be around to sort out and also due to the fact that history is replete with many high-profile examples of family members fighting over the estate and taking each other to court.
On the second point, however, let me confidently tell you that nomination is necessary but not sufficient. Let me explain.
Nominees are trustees of an asset; not ultimate owners
There have been many instances where the nominee mentioned in the bank/demat records and the beneficiary mentioned in the Will have been different. Consequently, the concerned parties have gone to court and there have been multiple litigations filed in district courts and high courts on the topic of Nomination vs. succession — which takes precedence.
Finally, the debate was settled by the Supreme Court. In December 2023, the Supreme Court in Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar & Ors, looked into the provisions of nomination under sec 109 A of the Companies Act 1956, section 72 of the 2013 Companies Act, the relevant provisions of the Depositories Act 1996 and the rules of succession mentioned under the Indian Succession Act 1925 and delivered a landmark judgement on Nomination Vs Succession.
Putting aside the legalese language of the court order, what the court said was that a company discharging its duty to hand over the fund to the nominee is quite different from granting ownership of securities to nominees instead of the legal heirs.
In simpler words, the judges opined that nomination does not provide the nominees the absolute ownership of the property to the exclusion of the legal heirs. They are at best trustees to the proceeds on behalf of the legal heirs as per succession laws.
Also, the nomination provisions are meant to help the corporates by absolving them of the responsibility of finding the rightful owners or getting bogged down by possible lengthy delays due to litigation among claimants.
Also read | How family trusts can help senior citizens and their NRI children manage properties in India
Harmony between a Will and nominations in investments
Firstly, nomination is necessary but not sufficient. To ensure that after your demise, your estate goes to the beneficiaries of your choice and in the desired proportion, it is necessary to supplement your nomination with a Will. And preferably registering the Will, as well.
Secondly, review and ensure that all the nominees provided in bank accounts, insurance policies and demat accounts are in sync with the beneficiaries mentioned in the Will.
With the recent proposal introduced in June 2024 by finance minister Nirmala Sitharaman in the Banking Law (Amendments) Bill 2024, the number of nominees allowed per bank account and per locker account has been increased from 1 to 4.
Finally, while you may not be a painter of the same calibre as Pablo Picasso or an author in the same league as Agatha Christie, by writing a Will you can certainly pat yourself on being better at estate planning and personal finance than either of them and you have done your loved ones a big favour by making a Will.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
The author is the Founder at Shrika Capital, a Bangalore based investment boutique firm.
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