Why digital passwords need planning too

Most of the phones have a passcode or pin and most likely is linked to an email which is again password protected. The idea is never to share any of this sensitive information with others, it’s at these extreme times, there should be a provision for the family members to access them. Like writing a will, making these passwords available at the time of demise helps the surviving family

We must have received flurry of communication in the last few weeks to update or add nomination to your financial securities like Mutual Funds (MF), demat account, savings account, etc. If you’ve invested in financial instruments, the last date was December 1, 2023, as per the Securities Board of India (SEBI) guidelines. Either one must add a nominee or explicitly opt out of nomination, if not the account would be frozen. A frozen demat account or MF investment means, the account holder can’t withdraw the investment. They’ll need to first update it before initiating any transaction.

But one should understand what a nominee is? What’s broadly understood or misunderstood about nomination is that upon the demise of the account holder (investment), the rights over the securities is transferred to the nominee. Nomination, however, doesn’t transfer the entitlement but to the successor as laid down by a law or the will of the original owner.

Nevertheless, there’re conflicting interpretations available over the role of nominee and the provision for nomination as stipulated under the Companies Act, 1956 (section 109A) as well as its 2013 amendment (Section 72) offer, by vesting the rights on the nominee, which thus overrides the succession law. Multiple civil law suits were fought on defining the role and rights of nominee. The Supreme Court of India in its recent judgement has put to rest the ambiguity in relation to the rights of the nominee in case of securities by upholding the succession law.

A nominee is a person who has been appointed by the owner to receive and hold the property (security) until the nominee is legally bound to transfer or distribute the same to the heirs of the deceased person. Nomination, hence, is only a provision for the claiming of property by the nominee as ‘custodian’, in case of the death/demise of the owner of the property. A nominee compulsorily need not to be legal heir but may be a legit heir if nominated for assets/wealth and/or his name forms part of the will.

In simple terms, a nominee will only be a trustee or custodian for a temporary duration until the establishment of the legal heir to the property or estate as per the succession law or based on a Will by the deceased person. A nominee has to handover the property or estate to the legal heir(s), per the succession law or based on a will of the deceased.

Legal heir is a person who is entitled to succeed to the property or estate of the deceased in accordance with the succession law or per the will of the deceased. So, having a will becomes important to ensure seamless or intended succession of the assets per the wishes of the deceased person.

Last week, I lost a friend in a fatal road accident. While there’s no dispute on the legal or inheritance it’s become difficult to access the personal information by his surviving family members. The phone is locked and no one has access to the key. Likewise, the access to his email. While there’s nomination in the bank and other investment accounts, these days the digital access is critical to track and avail information.

Most of the phones have a passcode or pin and most likely is linked to an email which is again password protected. The idea is never to share any of this sensitive information with others, it’s at these extreme times, there should be a provision for the family members to access them. Like writing a will, making these passwords available at the time of demise helps the surviving family. A journal or a secured file has to be provided to these most trusted person(s) to access this sensitive info at these times. Moreover, with many of these sites insisting for updating the password at regular intervals, the repository should also be updated accordingly.

While securing nomination to the existing investments is critical, it’s equally important for us to disclose or provide access to our digital avatar (devices), post our demise, to trusted family.

(The author is a co-founder of ‘Wealocity’, a wealth management firm and could be reached at [email protected])