The death of a family member is an emotionally traumatic time for families and is often further complicated by harrowing legal and financial procedures.
The family has to battle several challenges—transfer of assets on death of the holder, reconstructing the financial records of the dead or incapacitated person, grievance and appeal process for insurance claim rejection, advance preparation for disability or death of main decision-maker.
The Association of Registered Investment Advisors (ARIA) has examined these issues in a whitepaper titled 'Reimagining Nominations-Making Succession Smoother and Simpler' and offers a 15-point comprehensive policy for easing the process of nominations and successions. This white paper and an initiative called #ARIATrulyCares was inaugurated by veteran banker KV Kamath, founder and ex-managing director of ICICI Bank on 30th September.
The whitepaper, written by Pramod Rao, group general counsel, ICICI Bank, has proposed many measures, including easy, simple processes to check the status of nominations, provisions for e-nominations and minor nominees, specifying any number of nominations, along with categorically detailing the percentage of asset allocation for each, along with single-scrip level nomination, common form, and paperwork, amongst others. He mentioned that a "disarray of your financial legacy would be a disservice to successors."
Mr Rao said, the initial focus was on bank accounts, banks safe deposit lockers, demat accounts, and mutual funds, and will focus on other asset classes, going forward, in subsequent series as released by ARIA,” Mr Rao added. The whitepaper looks to offer convenience to consumers and reduce long-drawn litigations.
#ARIATrulyCares initiative aims to help investor families, fellow financial advisers and the community at large on financial matters based on specific challenges or situations, such as the processes related to transfer of assets on the death of an investor (across different asset classes). The initiative is also focused on leading advocacy for standardisation of these processes. It aims to bring together all information that an investor needs—right from things to keep in mind to processes followed by different financial institutions and banks.
The whitepaper reimagines the nomination facilities keeping the three policy objectives paramount and also uses the lens of providing ease and convenience harnessing the technological advancements and frameworks which are available today.
Many of us hesitate in drafting a Will and making nominations. But the onset of COVID-19 has shown that life is uncertain. While inaugurating the ARIA initiative to help stranded people cope with succession planning upon losing their loved ones to COVID-19, Mr Kamath, former-president, New Development Bank, stressed the importance of nominations and the need to have standardisation of forms and processes required in succession planning
Mr Kamath said that this issue 'jumps straight up the queue' in relation to other issues the world and India are battling in the wake of the pandemic. Earlier, the assets that somebody left behind were not substantial, particularly the liquid assets. However, in the past 20 years, the assets such as bank deposits, mutual funds, demat accounts of a person, who has passed on, are increasing, Mr Kamath said.
''Succession planning should start right at the time you open a bank account, who do you want to be your nominee, if not a joint account holder. 'This, at least, solves part of the (succession) issue. I think people are now aware that they need to plan succession and have proper nominations,'' he said.
In the whitepaper, Mr Rao has examined the legal and regulatory regime governing nominations and joint ownership of four popular financial assets and their nuances.
(a) Current accounts, savings accounts and fixed deposits with banks
(b) Safe custody and safety lockers with banks
(c) Depository or demat accounts
(d) Mutual fund holdings
Here is a summary of measures recommended for nominations facilities in financial assets:
- Easy, uniform and simple process to check status of nominations and to make or change nominees
- Simple, common nomination form/ e-form across financial assets
- Ability to specify any number of nominees
- Ability to specify percentage allocation among nominees
- Ability to specify successive nominees
- Ability to make single scrip/ folio/ security level nominations
- Mandating comprehensive e-nomination facilities, especially within the website or mobile apps of such provider that facilitates the financial transactions with option for completing or updating KYC of nominees at any time
- Extending nomination facilities for addressing situations of incapacitated financial consumer
- Ability to specify minors as nominees (with or without specifying an adult or guardian during the minority of the nominees and option to defer the age of vesting ( as regards the minor nominees)
- Making nominations mandatory for all financial assets (including in respect of legacy financial assets in a time-bound manner
- Centralised reporting of demise or incapacitation of a financial consumer and reliance upon the information reported and documents uploaded to trigger proactive outreach by financial service providers to the nominees
- Unclaimed funds and accumulations thereon that are earmarked for education, awareness or welfare of financial consumers should spread awareness and educate on advantages and benefits of nomination. On reimagined nomination facilities becoming operational, further awareness campaigns can also take place
- Elevating or equating nominees to being legal and beneficial owners of the financial asset (up to the percentage allocation as specified) and doing away with concept of regarding nominees as trustees or custodians for legal heirs in respect of financial assets.