Overview

Whenever you invest in an asset, the implication that it will be passed on to the possession of your dependent – child, spouse or someone else – is inherent. In fact, many of you may make such investments keeping in mind the future of your dependents. However, when you open a trading account online that holds all your securities, you may often forget or delay the process of adding a nominee.

A trading account is linked to the Demat account, which is the repository of all your financial assets using which you make sales and purchases on the stock market. Therefore, the nominee of your Demat account will also be nominated for your trading account.

Who is a nominee?

A nominee is someone who will legally own the trading account, and by extension, all the assets held in it in the event that the primary account holder dies. Unless a nominee is mentioned in the account holder’s documents, their dependents will have to go through gruelling paperwork in order to gain access to the assets.

You should appoint a nominee for your online trading account as soon as possible because in many brokerages if you have opened an account online, it will be assumed that a nominee has temporarily not been chosen. Should you choose to nominate, remember that you can add names of three people and also specify the portion of total shareholding each will be entitled to receive.

How to add a nominee?

Brokerages are realising that more and more account holders are increasingly forgetting to add nominees for their trading or Demat account, or wish to delay their registration. The process of nominating your dependent, however, is a fairly simple one. Brokerages are required to adhere to the process laid down by the National Securities Depository Ltd (NSDL) or Central Depository Securities Ltd (CSDL).

The account holder must download a form for registration of nominees available on the brokerage’s website, fill out all the details requested and provide a signature. Then, after making a photocopy of the form, the account holder must physically mail it to the broker. Alternatively, some brokers may also accept an online signature on the form which can simply be e-mailed back to them. You must remember that you always have the option of changing who you nominate to your Demat account or adding more nominees by simply filling out a nomination form.

How dependents can access the trading account if they haven’t been nominated

In the event that the account holder dies and has failed to nominate someone to their trading account, their legal heirs can access the account by filing some paperwork. Before we discuss that process, it is important to understand the difference between a legal heir and a nominee.

As per the law, a person’s legal heirs are entitled to own their assets upon their death. A nominee, on the other hand, is merely a person in whose custody the assets have been placed.

Often, the two are confused in the context of Demat accounts because depositories give the entire shareholding of the deceased account holder to their nominees. For this reason, it is considered best to appoint a person’s legal heirs as their nominees. If the two individuals are different, a dispute can arise upon the death of the account holder.

Let’s now understand how legal heirs can gain access to a deceased account holder’s assets.

The documents required for the transfer of shares depend on the value of the securities held by the account holder, as the process differs for securities worth Rs 5 Lakhs or less and those above Rs 5 Lakhs. However, two documents that are necessary for either procedure are the transmission request form from the broker or depository website and a notarised death certificate of the account holder. The death certificate can also be attested by a gazetted officer.

If the nominee is the same as the legal heir, they need only submit the transmission form, client master report of the nominee’s Demat account given by their depository and a death certificate that has been notarised.

Below Rs 5 Lakhs:

For securities valued below Rs 5 lakh, legal heirs must file an affidavit, letter of indemnity and a family settlement deed. One or more of these documents may be required, as the case may be. In the event that only a single legal heir applies for the transfer of shares held, all the others will be required to produce no-objection certificates.

Above Rs 5 Lakhs:

Now, if the deceased’s shareholding exceeds Rs 5 Lakhs in value, a letter of administration, succession certificate (issued by a court, and takes time to acquire) and copy of the will may be needed.

The nominee should be in possession of a Demat account in order to benefit from the transfer of shares. In case of a joint account, if the nominee is also a surviving holder, they must open a fresh Demat account. Alternatively, if the nominee does not have an account, they should create one with a depository in order to receive the shares.

Conclusion

Registering your legal heirs or other individuals you may want to add as nominees in a timely manner is crucial. It will save them from going through the hassle of obtaining crucial documents, some of them from a court after going through much red tape and delay. Moreover, clearly stating your nominees and registering them with your brokerage will avoid the possibility of conflict among your legal heirs or others with a stake in your financial assets, thereby making the process of transferring the shares smooth.