Joint account holding or Nomination – What is better?

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.

-o0o-