Link to 9 minutes video on which the Article is based https://bit.ly/3xHjvEu.
I recently participated in a panel discussion organised by the Department of Economic Affairs and the Securities and Exchange Board of India on June 8, 2022, at Vigyan Bhavan, New Delhi. It was part of the Azadi Ka Amrit Mahotsav celebrating 75 years of independence. Finance Minister Nirmala Sitharaman spoke on the growth in the number of retail investors in our country and the challenges faced by them. In the panel discussion that followed, I shared my thoughts on the issue of ease of succession planning.
Even in an august gathering such as the one at Vigyan Bhavan, the percentage of people who had made their Will would be in the low double digit. In the general population, the percentage would be close to nil. People are reluctant to write their wills because it is unpleasant to contemplate death. The pandemic has, however, brought us face to face with our own mortality and focused the spotlight on ease of succession.
If I were to die today, and I was a lazy person who had not written his will, then according to the personal law applicable to me-the Hindu Succession Act-my assets would be distributed equally between my spouse and my two children. But I have written a will actively choosing my spouse as my sole successor. If she predeceases me, my two children will be equal successors. In either case- whether the successors are chosen by personal law or according to my will-they will have to go through the long, tedious, expensive and tarikh pe tarikh court processes to get access to my assets.
My spouse is the nominee in all my assets. She will be able to get easy, quick and economical access to them. Nomination is a very made-in-India, made for India solution. However, it has a severe limitation. As a nominee, my spouse´s access to my assets will only be as a trustee for the eventual heirs. She will still have to go through the long, tedious, expensive tarikh pe tarikh court process to get final access to the assets.
There is one exception to this rule. As the nominee in my life insurance policy, she will receive the policy money on my death and will not be accountable to my two children for the policy proceeds, thanks to the progressive amendment brought about in the Life Insurance Act in 2015. Life insurance nomination speeds up access to assets but can give rise to friction between the nominees and the successors.
The unduly tedious succession process is one reason for the mountain of unclaimed assets of around 1.6 lakh crore consisting of unclaimed dividends, shares, mutual fund units, bank accounts, insurance policies, provident fund dues, etc.
To examine these issues, the Association of Registered Investment Advisors (ARIA) had published a white paper written by Pramod Rao, group general counsel of ICICI (acting in his personal capacity) with inputs from ARIA. K V Kamath had written its foreword (https://bit.ly/3NKLaKp) and had also released it last year.
Its key recommendations are as follows: centralised reporting of death, centralised processing of death claims, proactive outreach by investee companies to nominees, alternative nominees (in my case, my two children if wife predeceases) and nomination for incapacitation.
But the main recommendation was to change the relevant banking, corporate and other laws to provide for making nomination the third way of succession which is easy, economical and quick, just like it is in the Life Insurance Act. This would be in contrast to the other two routes – succession through personal law or through will- which are long, tedious and expensive.
In the 75th year of our independence, we should be able to provide freedom to Indian Citizens to choose their successors in an easy, economical, and quick manner.
The writer heads Fee Only Investment Advisors LLP, a SEBI Registered investment advisor; Twitter: @harshroongta
(A slightly different version of this column first appeared in the Business Standard on June 13, 2022.)