In India, a spiritual Guru talking about preparation for death is understandable where hundreds of discourses are on Sanyas, Moksha, Detachment, etc. However, a person in family bliss has many social and financial responsibilities. So, it is least expected of him to talk about preparation for death.
If we look at this issue of death, philosophically and spiritually all the wealth that we generate during our lifetime is left with our near and dear ones. We hope that it is of use to them and we are able to continue to support them financially even if we are physically absent.
Today, I wish to talk about some of the precautions that one needs to take to ensure that the wealth generated during your lifetime is inherited by the desirable person.
Investment – First Medium
The first medium of investment that any person makes is by way of a saving bank account or a fixed deposit. There are two options available – having a joint account and nomination. Having a second name in your account is very important. There is operational convenience when two persons operate the account further; the balance money is at the disposal to the next person named in the account.
Typically young boys and girls who take jobs fresh out of college open salary accounts through their company and do not take the trouble of adding another name. But in the long run such effort is well spent.
Also in case of bank lockers, generally the wife goes and opens the locker and husbands do not have time to go and sign.
Fixed deposits also suffer the same fate.
Banking Companies (Nomination) Rules 1985 permits banks to pay dues to nominees in the event of death of depositor(s) without asking for succession certificate or verifying claims of legal heirs. This simplifies settlement. There can be only one Nominee for a deposit account whether held singly or jointly. There can be two nominees for a jointly held locker.
Investment – Second Medium
The next medium of investment is often Life Insurance Policies.
It is important that premiums are paid on time and policies do not lapse. It is possible to get status of your policies from the insurance agent or the insurance company directly. All policies must have a nomination. In event there are changes in your family structure for example on getting married you may wish to change your nomination from your father / mother / brother to your wife or you may wish to change the same from your wife to your children. As life goes ahead, these changes should be made in your insurance policies also.
In event you mortgage your policy for loans, etc. the nominations gets void. After you repay the loan the original nomination should be resorted. This requires some fresh paper work. Nominations allows the nominee only to collect the money from the Insurance Company on behalf of Class I heir, which includes mother, spouse and children. Hence a will is necessary to divide these sums to the desired recipient.
Residential flats in housing societies must carry the nomination of the person to whom you wish to assign or put one to occupy. Lengthy court procedure is required in order to secure the rights of ownership by your desired occupant in event of improper paper work.
Investment – Third Medium
Shares and mutual funds are next class of assets, which are often neglected in terms of ensuring their perpetual usability. Several people have shares in their own name without any other name attached to it. On the other side, some people have many names and such persons may not be ready to part with the ownership in favor of the person that you desire to claim your inheritance.
For example: shares may carry only the husbands name, or the shares may carry the husbands and his brother’s or sister’s name who are not ready to execute the transfer deeds in event of death of first holder. Court probates have to be obtained in order to direct the company to transfer shares to desired claimants if the shares are in single name. It takes 3 to 4 years to get such probates on average and there is a cost of legal fees, which adds to the burden.
Though nominations are given in depository accounts, the companies are not bound to follow these nominations and transfer the shares to the nominee. Nominations have been provided in the Depository Act in anticipation of changes in Companies Act. However, the Companies Act never got amended to include such nominations hence companies which are governed by the Companies Act would insist on court probates for transferring the shares.
If you have a depository account with single name then open another account with two names and transfer the shares from single account to the account where there are two holders. Never ever have shares in single name.
Nominations should also be given in your provident fund and pension accounts. Claims can be easily processed if proper nominations have been filed. Please change the nominations as your family grows from time to time.
Many people believe that giving Power of Attorney would be sufficient to transfer your assets to your near and dear ones. It is important to know that the power of attorney expires moment a person dies. A non-existent person cannot delegate or transfer the power.
I Pray to God that all our investors have long and healthy life. Yet the pressures of urban living have led to lot of stress and serious impact on young people. The advice given above is not just relevant for untimely death but also for all those who are prudent and would want to preserve their wealth at all times.
Deena A. Mehta
Asit C. Mehta Investments
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.