NOKs, Nominees and Beneficiaries

A recent unfortunate event has grabbed some attention and brought these terms into focus. People often use these terms interchangeably, without understanding the legal differences, which at times leads to issues after their demise. The following is my attempt to make it simple.

Next-Of-Kin (NOK)

This is simply the closest living relative. In Indian law, before one’s marriage, they are the parents and after marriage it is the spouse. Most agencies (typically the Central or state governments in India) that give a pension without any contribution from the individual, will give a pension to the NOK. NOKs are usually nominated by people to get financial and other benefits in the case of their demise, so this term is often misused. One cannot change one’s NOK, but one can change one’s Nominees and Beneficiaries.

Nominee

When making any financial investment (including opening a bank account), one is advised and encouraged to appoint a nominee. Many people misunderstand this as replacing a Will, since this is taken to mean that the money will flow to the Nominee in case of the holder’s demise.

The Nominee is only the person, to whom the agency handling the investment (bank/ stock broker/ AMC) transfers the invested amounts, since the person who is otherwise the owner of the account is no longer available to operate that account, so that the account can be closed. Further disposal of the amount transferred is the responsibility of the Nominee, which he must fulfil as per the deceased person’s Will, or in its absence, the law of the land.

To give an example, if A has a bank account, held in his name alone, in which he names his wife B as Nominee. They together have children C and D. In the event of A’s demise without leaving a Will (called ‘intestate’), the bank balance will be transferred to B, but now she legally has a right to only 1/3rd of the amount (as per Hindu law). She must distribute the remaining amount between the children. Children above the age of 18 can give a waiver that they do not want the funds, but minor children cannot, which can lead to more complications.

Wills and Beneficiaries

A Will made by an individual is simply a statement of how he wishes his property to be distributed. The individuals who get any share in the property are known as ‘Beneficiaries’ or ‘Legatees’. They need not be NOKs.

In the case of a bank account held by an individual, as discussed before, A needs to leave a Will stating clearly how those funds are to be distributed. He could leave the entire amount to B, or leave a percentage to B with the remaining being distributed between C and D. This makes things uncomplicated and clear.

If a house is owned jointly by A and B, each has 50% share in it (unless they have specified otherwise in the deed). In the case of the demise of any of the two owners, that share will get divided into three! As before, a child who is a major can give away his/ her part but a minor child cannot. This can lead to complications when the title to a property needs to be transferred.

What is also to be understood is that one can only give away what one owns or has paid for. Pensions paid by governments, which individuals do not contribute to, can obviously not be Willed to anyone other than what the government’s own rules dictate. I can, therefore, neither leave my pension nor Mukesh Ambani’s Antilia (the couple of shares of Reliance Industries that I held then, which must have indirectly contributed, don’t count), to anyone in my Will, since I have paid for neither.

Similarly, the proceeds from insurance policies, where they are paid for by individuals, are distributed as per his/her wish. In case an employer buys insurance policies for his employees, he may or may not choose to give the employees freedom to nominate the beneficiaries of the same. In the Indian armed forces, premiums for the insurance policies are paid for by the members, so they get to decide who the beneficiaries will be.

Essential Activities for Individuals

All individuals who own any property (some money in a bank account/ investments/ a house etc) must make a Will, clearly indicating who gets what. Even where there is no conflict between family members and prospective beneficiaries, this is likely to be of help in sorting out issues.

One must consider one’s age and stage of life (married or unmarried, if married then whether there are children), and the circumstances of the people who will be most affected, when making the Will. Since all these factors keep changing over time, one must keep revisiting one’s Nominations and Will to keep them relevant.

It is normal to expect that one’s death will be traumatic for the near and dear ones. It is, therefore, one’s duty to reduce the trauma by carrying out these essential activities.