From estate planning perspective, What is important to have in accounts and investments – keeping the joint account or having a nominee? This question was asked by Mr Saksham through mail referring to my article on nomination. He specifically singled out point no. 2 at the end of my article where I wrote,
“If you want to further reduce the hassles of the family members, then rather appointing nominee make them joint account holder and keep the mode of operation as “Anyone or survivor” or “ Former or survivor”. Don’t forget to mention the same in your WILL too.”He questioned that if he appoints a joint holder in all his investments then does this mean that there’s no need to appoint a nominee. It was a small and direct question but requires a detailed answer so I thought of writing a post on this.
Let’s first understand about joint account holder in brief.
1.) Joint account holding makes funds accessible to all joint account holders (depending on the mode of operation opted), which is not possible in a single holding.
This helps when the primary holder is going through bad health or gets temporarily disabled due to an accident or in any such situation when the primary account holder is not available to sign or operate the account.
2.) Joint account holding can help in keeping a check on the usage of funds and inculcate some discipline in personal finance.
For e.g. when your children become major, and from a tax planning perspective you want to gift some amount to them or you want to transfer the funds saved for their education into their account, but you are not sure about their financial management ability.
In such a case you can make yourself a joint holder in that account and keep the mode of operation as Joint, so till the time, you gain confidence in the financial management ability of your children you can operate the account jointly with them. Read : Tax planning Tips
(Read : How nominations makes distribution of wealth easy)
3.) Just like the above mentioned case, joint mode of operation between spouses as joint account holders in bank accounts as well as in investments maintains a check on keeping up with the family budget as well as unnecessary withdrawal/redemption of investment for impulsive buying.
4.) Joint holding in some cases helps you saving taxes too. Like in case of joint home loans, both the borrowers can claim tax benefit in the ratio of their ownership. Even if there is rental income on the property or capital gains earned by selling off the same than again both income gets divided among the all owners.
Some misconceptions regarding joint account holders
Joint holders become the co- owners and thus can claim part of the deposit or investment. This is not true. In every financial investment joint holder is added just from operational point of view. Complete ownership, earnings and tax liability would be of the primary holder only.(with only exception of real estate).
I have to close my existing account and open a new joint account – No, not required. You can make your existing bank account a joint account. But yes, this may not be possible in the investments that you have made.
I cannot make my salary account joint – This again is not true, your salary account is a normal saving account and you are free to add joint account holder in it.
Disadvantage of joint account holders:
– The main disadvantage of having a joint account holder is that couples may not feel comfortable with the loss of financial independence that comes with a joint bank account, especially in the early years of marriage.
– Other disadvantage or you can say restriction in joint account holding is that no single holder can make changes in the basic details or structure of the account on his own. For a change in address, phone numbers, closing of the account, etc. both account holder signatures are required.
What is advisable having a joint account holder or nominee?
Now let’s come to the main question, which one is advantageous to have – A joint account holder or nominee?
Can one avoid appointing a nominee if there’s a joint account holder or if someone has a nominee, is there any requirement for a joint account holder? Well, it is very much clear from the above-mentioned details that if the purpose is easy operation of account in the lifetime or even after the death of the primary holder, having a joint account holder is always advisable.
But nomination also has its own importance. It’s like having an alternative to the joint holder. Do keep in mind that neither joint holding nor nomination creates legal ownership towards funds lying in a bank account or joint investments.
The legal ownership goes to the person mentioned in the WILL or to the legal heirs as per the Indian Succession Act. So the onus lies on you to write a proper WILL and keep joint account holder and nomination both as per your distribution goal.
Idea behind all this is that the wealth should be managed and distributed comfortably and without any ambiguity or confusion. You can make the ultimate beneficiary or the one to whom you want to bequeath the particular investment as a joint account holder and alternate beneficiary as a nominee who will get the inheritance in case something happens to the joint holder or if joint holder predeceases you.
Also please note that appointing nominee has been made compulsory in many investment products.
Hope now you are clear on what to do? I think to have a joint account holder with a nominee, both should go in your favour.
One of the issues I have seen with joint account mode is, the banks ask for both signatures in case of a connected FD maturity, even if the account is EOS mode. I cant understand this logic, may be they are trying to play more safe. When I questioned the bank, I did not get any proper answer. Finally, while the account is joint (EOS mode), I put the FD in my single name with second name as nominee. Understandably, they dont ask for both signatures, when a FD is created but they crib only when it matures.
Also as per most banks, the internet banking is applicable to only to first holder.
It happens because Joint holding is all about mode of operation. but when you open or close the account bank needs permission of all account holders to take action. FD closing is a closing of account so both signatures are required.
in joint account holding if one account holder has not complied kyc then what happens to operation of account
I feel that in case of nomination, nominee gets full right over the deposit, in case of demise of depositor. Depositor can nominate anyone, who is totally not related and hence the legar heir laws are not applicable.
Nominee is only a caretaker of the funds, he is responsible to handle it in the absence of the investor, to deliver to the legal heirs. It cannot belong to the nominee. Keeping a nominee only makes the banking transaction easier.
1. I would like to know that as per the RIB guidelines or instructions which one joint account of husband and wife or one of them as Sole account holder & the other as nominee in a bank is accessible easily. Further our children are out of the country and I am 81 years & my wife is 78 years.
2. In Senior Citizen Saving Scheme is it stipulated that only Residents of India can be nominees?
I am nikhil dwivedi i am 35 years old ,my bua (fathers sister) are divosered and i am joint holder of my bua sbi and uco account ,at deceased case any legal hiers can disturb me in saving bank account
You being the joint holder in the account, doesn’t make you the owner of the account post her demise. Also, you do not possess any legal rights over her assets unless she bequeaths them through WILL. Else, the assets would be distributed according to the succession act.
Nominee is necessary for joint account. I want know according to rbi guidelines it is correct.
No, it is not necessary but you need to declare it in the form that it is a joint account and there is no need for nomination while opening a new account or converting an existing account into a joint account.
IS THE PRIMARY BANK ACCOUNT HOLDER HOLDS COMPLETE OWNERSHIP OF THE FUNDS IN THE ACCOUNT?
Yes, this is true. But in case of disputes, the court sees the source of the fund for ownership purposes.
In case of death, who will get operating rights, joint account holder or nominee?
1. In case of FD
2. In case of Demat account
3. In case of Mutual FUnd
4. In case of Immovable property
5. In case of PMS
Does it make any difference if the account, wherever possible, is either or survivor?
Hi Siddhi,
The surviving Joint holder will have the right over the nominee in all these investments.
Can survivor of joint account appoint any nominee after the death of first holder when there is no nominee before
Operationally speaking, the second holder becomes the owner of the account after the death of the first holder. So, he can appoint the nominee in the account.
My father has registered me has his nominee in all his FD,bank accounts,locker.in addition to me he has two more sons…..I want to know what is the legal aspect….we are Hindus by religion
Hi Neelesh,
The nominee is just the trustee of the account and not the owner. So, after your father all these would be divided equally among three brothers and your mother as per Hindu Succession Act.