For whatever reasons unknown to me, have been involved with matters related to ownership of financial assets over last few weeks. And, not for self but others too. It has been an eye-opener as far as the procedures and regulations in management of financial assets are concerned. Without going into details, let me share with you few important and, at times, not so obvious practices. You should not fall into a crevice, as some of my friends and I did. Please note that these learnings are based on the Indian Financial System where we are working in hybrid mode – online as well as in-person banking. This creates some unique situations. Here are some of practices for your perusal.
For any account in bank or in Non-Banking Financial Companies (NBFC), please ensure you have a nominee for each and every account. Even if you have a joint account, where perhaps one of the account holders will always be able to operate, ensure you do have a nominee.
By the way, the nomination registration will require you to submit a hard-copy duly signed by all Joint account holders and, thus, cannot be done through net banking. Also, even minors can be nominee.
For any electronic transaction, such as, booking and managing Fixed Deposits (FDs) through a joint account, please be aware that in case of certain transactions, one is required to submit a hard-copy to bank because they insist on signatures of all account holders.
As an example, if an FD is opened on net banking and is in joint name, pre-mature liquidation of FD cannot be done electronically. One has to submit a form signed by all account holders and it takes time to achieve liquidation. Once again, please have a nominee for each and every FD.
It is better to open an FD as Single Holder with a nominee, if done through net banking. One can liquidate such FDs on net banking without visiting the bank.
Many opt for subscription to financial instruments in name of senior citizens (parents and/or other relations) to take advantage of better interest rates/benefits. Always, have someone as a joint account holder with senior citizens as primary account holder. Please be cautious of the fact that if the senior citizen is not able to sign because of sudden disability to visit the bank, there can be serious losses and inconveniences with respect to FDs.
Typically, senior citizens will insist on having a hard copy of FD. In such cases, if auto-renewal option is active, no signatures are required; however, one cannot do anything with such FDs if senior citizen (a.k.a. primary account holder) is not able to sign. Thumb impression is the only option which will cause stress to senior citizens. Better option is to hold the instrument in joint name with do not renew option so that, the investments can be managed electronically without bothering the senior citizen for signatures. Please ensure you do take the senior citizen into confidence as financial insecurity builds up with age (my experience so far and could be misplaced conclusion.)
Lockers are another cup of tea altogether. First and foremost, always have an Operative Nominee (check with your bank if they call it by some other name). An operative nominee can legally access the locker in unfortunate case of demise of the owner of locker. Whereas, just a nominee cannot legally access the locker without paper work and procedures that are excruciating.
Typically, banks keep an FD as security against the rent payment for locker each year. Please ensure that there is a nominee in FD; better to have same person who is operative nominee for locker.
Mind you, have the original paper with operative nominee clearly listed, in your possession. It should be signed with seal of the bank for smooth access to locker.
And, finally, a fact that even many Chartered Accountants are not aware of (in my experience.) If you always have Employee Provident Fund (EPF) account with Government as you change jobs, nothing of significance for you here. However, if you have been working for different employers and some of them do have their own trust to manage retiral benefits, please read carefully.
If you have not completed Five years of continuous service with an employer having a trust where your EPF is deposited, make sure that you transfer the same to either Government EPF account, or to the trust of your new employer immediately. Critical words are Five Years of Continuous Service.
In case you do not transfer for whatever reason, the entire amount you withdraw will be taxable and, in addition, you will have to pay penalties and taxes on all deductions which you took while filing Income Tax Returns during the less than five years of service. This can be as high as one-third of the amount in EPF.
The exceptional scenario being if you were fired by the company before five years of continuous service due to closure of the business. Otherwise, the only way is to transfer the amount and wait for a period required for completion to five years before you can legally withdraw it without paying any taxes or penalties.
In my experience as also learning of my colleagues, we would always want our inheritors to have a smooth ownership of financial assets. After all, we earn to ensure our families remain financially robust, always. The best approach is to have a Registered Will of both – husband and wife – so that inheritors will get to own the assets without legal hassles. Key word again is Registered Will because that ensures no one can challenge the Will.
My primary motivation to share these findings are our dependents and inheritors. They should not be going through a rough ride just because we failed to fulfill our responsibilities adequately, when we are alive or otherwise. Therefore, depending on maturity and understanding of nominee(s) about your financial liabilities and assets, please keep them informed….this is very important.
Please feel free to seek clarification on any aspect listed here. Would love to hear further best practices from you to help us all be responsible to our family and society at large, under all circumstances.