Joint Holding vs Nomination

This is a true story. Long ago an old widow came to our office. She had been essentially a homemaker. Fortunately, her husband, upon his demise had left her a large sum of money. These funds were required to be invested. The main problem was she had no trustworthy relatives in India. She had a daughter and a son, both well-employed NRIs. Unfortunately, her son had never treated her as a mother and she desired not to pass on any funds to him after her demise.

The first step was to prepare a will and get it registered. The will had to clearly declare that she bequeathed all her assets after her death only to her daughter and nothing to the son. The next step was to open a bank account in her single name with the daughter as a nominee. A joint account has several problems. Firstly, opening an account remotely by the daughter is not practically feasible. Normally, opening of an account is a tedious process what with the current KYC requirements needing a whole cartload of paperwork. More importantly, while purchasing or selling some of the instruments, particularly shares of an Indian company, the signatures of all the joint holders are required.With her in the US, it was just not practically possible. The alternative seemed simple. The daughter was appointed as a nominee for the bank account.  After all we thought, appointing a nominee is almost like having a joint holder.

As per the legal provisions, a joint holder whose name has been appended to the account for convenience and who has not invested any amount therein out of his or her own pocket, cannot claim ownership of the funds. They can collect the funds in a fiduciary capacity and have to hand over the funds to the legatees of the deceased persons as defined by the will of such deceased person. In the case the person dies intestate (without making a will) the funds are required to be distributed to the legatees of the deceased person, as per the Succession Acts related to the religion of the person who has expired.

Everything worked smoothly and the client was quite happy with the succession arrangements.

Recently, unfortunately, the client recently passed away and it was then that one reaized how wrong one was in equating a nomination with joint holding.

The nominee was asked to open an NRO account to enable the bank to transfer the money from the account of the deceased person to this account. She did this. Additionally, the nominee was required to open an NRE account for the bank to transfer the money from NRO (non-repatriable) to NRE (repatriable) since this fund arose out of inheritance and as per the provisions of FEMA, the NRI can repatriate inherited funds. She did this.

All the deceased’s investments were withdrawn but a few (only three) caused a problem arising out of a lock-in problem as also difficulty in redemption of their FDs by some companies, thanks to the provisions of the new Companies Law.

The bank informed the nominee that the amount lying in the account can be withdrawn entirely and not in parts. After the withdrawal, the account has to be closed. Horror! If she withdraws the funds, she has to close the account. When even one of the problem cases gets resolved and money is received, it has nowhere to go. It cannot go to the account holder’s account since the same is closed and the nominee on her part cannot deposit it in any bank account, including her NRO or NRE.

We humbly request the authorities to arrange for partial withdrawals by a nominee from the account of the deceased person, if and only if the nominee provides all the KYC norms necessary.

This story has another twist. Any will, even if registered, has a pitfall. Anyone, can go to  court challenging its veracity on some ground or the other. In this case, the brother has claimed that the amount got by her mother was ancestral in nature, not earned by her, and therefore she has no right to bequeath it only to her daughter. This means that registering the will serves no purpose since anyone can challenge its veracity.

It is unfortunate but true that these funds will languish in the bank for years to come until the court takes its decision and we all know how long and expensive this procedure is.

This piece is designed to bring out the fact that it is not enough just to appoint a nominee for your investments – there is a huge difference in the rights and privileges of a second / joint holder vis a vis the nominee and never should one commit the mistake (like we did perhaps?) of equating a nominee with joint holding.

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