What happens to investments when the holder dies without nominating anyone?

Your family could face difficulties as getting a succession certificate from the court is easier said than done

The second wave of Covid-19 has been more lethal than the first. Over the past few weeks, India saw daily deaths breach 3,000. There have been many cases of the breadwinner, and sometimes even both spouses passing away. Picking up the financial pieces after the loss of a member is never easy for the family. And, if the nominations are not in place, it becomes difficcult for the heirs to get access to the deceased's investments. This could hold true for bank accounts, demat accounts, mutual funds, and even insurance policies.

If there is a nomination, financial service providers are required by law to transfer the instruments to the nominee unless restricted by a court order. But there's a caveat here. Avinash Khard, associate partner, DSK Legal says, "Any transfer in favour of the nominee does not confer on him any beneficial interest in relation to the financial instruments, which will be subject to the applicable laws of succession. The nominee will hold the financial instruments (including any proceeds arising thereof) in trust for the benefit of the legal heirs of the deceased." 

The dependents need to go through a lengthy legal process and a lot of hassles to obtain the instrument. Hence financial institutions insist on adding nominations and campaign extensively to get these details updated. It enables nominees to make their claims smoothly.

Unlocking in the absence of nomination

Here are the procedures to be followed in such cases for getting access to the money locked up in financial instruments.

Banking: The nominee is someone designated by the depositor to act as the trustee of the bank account when the latter dies. In the absence of nomination, several things come into play. Adhil Shetty, CEO, Bankbazaar says, "If the account is operated as 'either-or-survivor', then the survivor may claim the deposit. If it is operated jointly, meaning that all account holders need to sign for withdrawals, then the bank will usually pay the proceeds out jointly to the surviving holder and the legal heirs of the deceased." 

Shetty adds, "In case it is a singly-operated account, then the heirs may have to present the will of the deceased to stake their claim on the asset." 

Praveen Bhatt, Executive Vice-President & Head, Retail Liabilities & Direct Banking Channel, Axis Bank, says, "In the event of the demise of all the holders and where nomination is not updated in the accounts, the funds lying in the accounts of the deceased are settled as per the mandate given by the legal heirs, after establishing their identity." 

Upon successful submission of claim documents by the legal heirs and subject to its verification by the bank, the claim is settled to all the legal heirs of the deceased holders or any one of them mandated by all.

In all cases, the claimants will have to make an application and submit it along with a copy of the account holder's death certificate, the claim form, and address proof and ID of each claimant. If there are several heirs and the assets have to be transferred to only one of them, then the others will have to sign a disclaimer, relinquishing all rights to the assets in favour of the claimant. 

Insurance: Life insurance is bought to help people meet their long-term goals and secure the future of their loved ones in case something were to happen to the policyholder, who is usually the breadwinner in the family. If the absence of a nominee, the legal heirs can claim the sum assured. Naval Goel, CEO and founder of PolicyX, says, "In order to do so, the legal heir needs to present a claim intimation letter along with other requisite documentation like death certificate, ID proof of the beneficiary, policy papers, discharge form (if any), post mortem report, and hospital records (in case of unnatural death).

Sometimes the insurer would require a succession certificate issued by the court specifically mentioning the policy number and the amount to be paid. Sachin Dutta, chief operating officer, Canara HSBC OBC Life Insurance, says, "In certain exceptional cases if there is no succession or legal heirship dispute in the family, after due assessment on case to case basis, we can also consider a legal heir certificate issued by Class-1 magistrate along with Indemnity duly signed by all legal heirs specifying to whom/all payment of policy proceeds needs to be done." 

But remember, the absence of nomination can create difficulties for your family as getting a succession certificate from the court is easier said than done.

Mutual Funds: AMCs have to adopt a Standard Transmission Request Form and a common set of supporting documents for the transfer of units as prescribed by Amfi. With this, there is a uniform request form and uniform documentation across fund houses to deal with the transfer of units, which would be a great relief for claimants, who earlier had to undergo the transmission procedure prescribed by each AMC in case of investments in multiple fund houses.

Jayant Pai, Head-Products, PPFAS Mutual Fund, says, "The procedure requires the heirs to first produce certain documents including, but not always limited to, the death Certificate, PAN Card and KYC Acknowledgment of the claimant/s, documents proving their relationship to the deceased, etc. along with the Transmission Form." After that, the process will vary slightly based on whether the transmission amount is above or below Rs 2 lakh. Sriram Iyer, CEO, Digital Wealth Management, ARWealth, an Anand Rathi Company says, "The requirements for amounts below Rs 2 lakh may be slightly less stringent while for larger amounts, succession certificate or a probated Will may also be needed." 

Probate is the term for a legal process in which a will is reviewed to determine whether it is valid and authentic.

If the transmission the amount is more than Rs 2 lakh, apart from individual affidavits, production of a succession certificate, or probate, or letter of administration is mandatory, as against a bond of indemnity. Upon transmission, the units stand as a valid discharge by the asset management company. 

Demat Account: In case the demat account holder hadn't nominated anyone in his life time, any transmission of the securities from the demat account will be made to the legal heirs in compliance with the provisions/procedures laid down in the bye-laws of the respective depository participants. Depository participants generally insist on certain documents prior to making any transmission of the securities lying in the demat account (See box). If the value of the securities exceeds Rs 5 lakh, then the claimant must provide a copy of the probate of the Will or attested or notarised copy of letter of administration or a duly attested or notarised copy of the succession certificate or an order of a competent court to support their legal claim along with the transmission request, copy of death certificate and client master report of the demat account of the claimant.

Documents needed prior to making transmission of securities lying in the demat account

When letter of succession is available

• Transmission request form
• Death certificate (original or attested, as the case may be)
• Succession certificate or letter of administration or the letter of probate
• Client master report of the claimant (if required)

When letter of succession is not available *

• Transmission request form
• Death certificate (original or attested, as the case may be)
• Letter of indemnity executed by the claimant
• An affidavit executed by the claimant
• No-objection certificate from all legal heirs who are not claimants/family settlement deed (as the case may be)
• Client master report of the claimant (if required)

*Legal heir is unable to provide the succession certificate, or letter of administration, or the letter of probate and the amount of such securities are less then Rs. 5 Lakhs

Source: DSK Legal