investments: Make assets accessible to heirs: Take time to consider operational, procedural aspects of investing – The Economic Times

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SynopsisI do not tire of warning the perils of mindless investments parents make for their children, in land and property. These assets are chunky, require consistent maintenance, and are difficult to rent or sell if the child in whose benefit it was bought is not living there.

There was unexpected panic after a friend’s child recently turned 18. The parents had been investing all the monetary gifts he received meticulously in his name. They held bank accounts, mutual funds and also a demat account into which the shares gifted by the grandfather were kept. To fund his higher education, they decided to use this money, only to be told that they can no longer operate the accounts, as the boy had now turned major. While I am surprised how such well informed parents would be oblivious of this procedural requirement, it is not uncommon for many to focus on returns alone while managing investments and to generalise that processes are needlessly complicated.

Returns and risk dominate the discussion about investments and asset creation. But many do not take the time to consider the operational and procedural aspects. Streedhan in personal law includes assets a woman brings to her marital home such as financial assets, gold and land and is exclusively hers. It cannot be attached even if the husband turns bankrupt. But I know of many women who do not know their rights, and even if they did, remain stuck with small procedural issues such as the change in their maiden name. Many let the husband transfer and modify the holding pattern of the assets and sign off transfer and gift deeds. Pension accounts are held in single names by many.

I know of senior citizens who operate these accounts with great caution and needless suspicion. A 90-year-old woman in our village who drew pension as a retired schoolteacher left behind a pension account with lakhs in deposits with no nomination. Her very amicable son and daughter who cared for her are still running from pillar to post. A simple act of transferring the pension through a standing instruction every month, into another joint account held with her children would have automatically passed the rights to account to the survivors.

The ownership of an asset vests with the persons named in the documents evidencing the ownership. No one else can claim the asset. This basic property right is fundamental to ensure that others do not unfairly use the asset. Operational procedures are designed to establish this right after necessary due diligence, protect this right and to transfer it after another round of due diligence and checks. Household financial assets and physical assets must take these procedures into account, to make their own lives easy. Let’s consider some common issues this week.

One must be a major (18 years of age or older) to be able to enter a valid contract with another. To own financial assets, the Know Your Customer (KYC) process is mandatory for all financial institutions. This requirement is for establishing the identity of the account holder and to record the address and verify the same in person. The signature of the account holder is also recorded. In the case at the start of this column, KYC process will be done afresh, and the now major can operate the accounts after that. Parents who make investments in the children’s name should know that such accounts of minors cannot be jointly held and that they will all be operated only by the minor turned major after the child turns 18.

I know of bonds purchased in the names of minor children maturing after they turned major and getting unintentionally stuck for access to the maturity value by the parents. Similar issues arise with PPF accounts opened in the name of minors. While parents are allowed to make gifts to children, the income arising from these are taxable in the name of the child. Such income will be clubbed to the income of the parent (whosoever has a higher taxable income) while the child is a minor, and taxable in the major’s name subsequently. These transactions thus amount to bequest, where the assets will transfer to the child who will have independent operational access on becoming major.

I do not tire of warning the perils of mindless investments parents make for their children in land and property. These assets are chunky, require consistent maintenance, and are difficult to rent or sell if the child in whose benefit it was bought is not living there. Family courts are filled with cases of various hues when properties are left behind without wills, stuck without being transferred legally to heirs, who have moved on to live elsewhere.

An elderly lady who met me many years ago told me that her son had asked for the house to be gifted to him, and she signed off the registration deeds with the agreement that he will take care of her until her death. He subsequently abandoned her. When she approached the lawyer, she learned that gifts are irreversible and unconditional. She regretted not consulting the lawyer before she signed the gift deed.

Another widowed mother held the property jointly with her husband, and on his demise the son completed the paperwork for joint ownership with the mother, telling her it was operationally convenient to do so. She later realized that the son had taken many loans against the property and offered personal guarantees for business loans, that the property was foreclosed on his default. She was devasted when they turned homeless.

Many have suffered from needless secretiveness about assets, and the lack of a basic understanding of ownership rights. It is considered impolite in many households to ask what insurances have been taken and who the beneficiaries are. There is no virtue in the declaration that one does not know anything about money matters. I have met young widows struggling with insurance and pension benefits naming the husband’s parents as beneficiaries, while the widowed mother had children to bring up but no way to access her deceased husband’s assets.

People who move abroad tend to hold financial assets back home and many are not meticulous about the paperwork. Many of these assets remain unclaimed and inoperative. In an era when incomes from assets mattered so much and growth in value was still a new idea, many elders invested in company FDs, bank deposits, bonds, post office, and government institutions for the interest income. These unclaimed deposits and maturity amount now accumulate in the Investor Protection and Education Fund, utilized among others to teach investors how to claim what is theirs by understanding the operational procedures. Cruel irony.


(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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