Savings bonds don’t carry nomination option for joint holders

 Source: Aaron Rodrigues :ML:May21,2010

Entitled legal heirs to these financial instruments will have to face a lot of time-consuming paperwork and legal hassles if these bonds are transmitted to them

According to the government of India’s 2003 notification, savings bonds do not carry a nomination option for joint holders. With no nomination facility available, any entitled legal heir will have to face a lot of paperwork and legal hassles for inheriting the funds accrued in such bonds.

“I thought nomination is mandatory for all financial assets as well as physical assets. Didn't all co-operative societies make it compulsory for members to have a nomination some years ago? I just discovered this when I received a bond certificate (for the Govt of India 8% savings bonds) with the section 'Nomination Registered at Sr No' struck off,” said Dr Nita Mukherjee, a well-known researcher.

According to the 2003 notification, the sole holder or a sole surviving joint holder of bonds can nominate one or more persons who shall be entitled to the bonds and the payment in the event of his or her death. This means that only the surviving member of a joint bond account can nominate someone. ”The government presumes that both holders of a joint bond account won’t expire at the same time,” said Bhavesh Gagiwala, a certified financial planner (CFP) at Falguni Investment.

Mr Gagiwala added that joint holding allows three applicants—and the government didn’t think that nominees were a necessary option. “Some of our rules are so weird and you can’t complain or take it up to someone, as this is a government scheme,” said Yogin Sabnis, a CFP from VSK Financial Consultancy Services.
But nomination is the simplest way for transfer of funds to legal heirs during the time of death. Without such nominations, heirs have to do a lot of paperwork and spend a lot of money and time to get the assets. “If there are no slots for nomination, which is your inherent right, then that is a tremendous issue,” said Vivek Rege, MD, VR Wealth Advisors Pvt Ltd.

A legal heir entitled to these assets would have to do a lot of paperwork, which include signatures from various relatives and the filling up of a nomination or succession form. These signatures would be proof for the issuing authority of these financial instruments in order to release the assets.

Added to that, heirs who have not been expressly nominated would also have to issue advertisements informing the public that they are the legal heirs and should receive no objection from their relatives. The entire scenario becomes very time-consuming and the heirs have to shell out a lot of money for legal fees.
On 20th April, the Bombay High Court had ruled that in case of transmission of shares, all ownership rights will vest with the nominee rather than the legal heirs.

Mr Sabnis said that the rule may have been implemented in order to reduce conflict. This is a major lacuna in whole process and leaves a lot of unanswered questions for customers.

However, certain banks provide you with a separate nomination form when you want to open a savings account. However, it is not compulsory for banks to have a separate nomination column