Writing a Will Vs Nomination

January 31, 2024

Wills and Nominations, both vital legal instruments, play distinct roles in shaping the allocation of an individual’s assets after their demise. These tools, though aligned in their ultimate goal of asset distribution, comprise unique characteristics within the realm of estate planning and so are often used interchangeably. But, the law identifies their purpose, object, and consequence, and hence, it is important to know the distinction.

The Indian Succession Act of 1925 defines a “Will” as a legal declaration of a person’s wishes regarding their property after death. In effect, a Will is like a detailed letter where a person declares how their belongings would be distributed amongst whom and in what manner on their demise.

They can decide which specific assets, be it real estate, personal items, or financial holdings, go to designated recipients, who may or may not be their relatives. So, a Will offers flexibility by allowing the planner to provide for his/ her dependents or contribute to charitable causes in advance. So, as an owner of a property, one has the liberty to direct the sale of a particular asset, and the proceeds could be directed to be used for the financial support of one’s children. Alternatively, they may want the asset placed in a trust, ensuring its use benefits a chosen beneficiary until they reach a specified age.

On the other hand, nomination is the process of naming the individual who would immediately be entitled to hold the assets after the owner’s death. This commonly applies to financial holdings like stocks, bank accounts, insurance policies, etc. A significant perk of naming a nominee is to avoid stagnation of the assets of a person, subject to the process of will being executed/ intestate succession being undertaken (process to be followed when the deceased has not left a valid will). Nominations thus pave the way for a quicker and less complicated asset transfer, enabling ease of release of the asset and immediate enjoyment of the same.

In the unfortunate event of the account holder’s demise, the nominee acts as a custodian who takes care of and manages something on behalf of someone else in the event of his death. However, it’s crucial to grasp that the nominee doesn’t become the account owner. Their role is to facilitate the transfer of funds to the legal heirs (the people who inherit) of the deceased depositor.

Nomination is not mandatory with respect to most of the financial assets, but its significance should not be underestimated. In the absence of a nominee being named in the contract (which is the basis of the holding of the asset), the asset would remain stuck with the holder (like the bank, insurance company, demat account holder, etc.).

Imagine Person A owning a demat account where his brother is named the nominee. Furthermore, Person A’s Will reveals his wish for the shares and stocks held in this demat account to be passed on to his wife. In the event of the death of Person A, despite the brother receiving the funds as the nominee, he would function merely as a trustee rather than the rightful owner and would be obliged to act as per the mandate in the will and transfer the funds to Person A’s wife, who has the rightful ownership. Taking leave from this example, it is thus advisable that the beneficiary named in the will, being the same person named as the nominee as well, would enable further reduction of the possibility of disputes about the person’s assets.

For completeness, the law also provides for the situation in which a person does not execute a will during their lifetime in which case the principles governing the religion of the person apply for identification of the legal heirs and their respective share. However, that is a subject containing its own details.

In essence, while having a nominee is crucial, writing a Will is equally significant. A Will ensures the planner’s wishes are honored precisely when they’re no longer around, enabling them to ensure their assets bring joy to the right people on the terms they envisage.

Understanding these concepts is like untangling threads, making sure your legacy is left in capable hands to ensure one’s near and dear ones are provided for even after their own passing on. Whether it’s leaving one’s vintage guitar for their own musically inclined niece or nominating one’s financially savvy friend to handle one’s bank account, these decisions ensure your wishes are carried out seamlessly by those whom one trusts and for those whom one cares for.

Aakanksha Nehra is a partner, and Preeti Singh is an associate at PSL Advocates & Solicitors.

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