Administration Of The Deceased’s Estates: An Analysis To The Effect Of Nomination

Nomination

Accounts with the nomination are treated differently as compared to other inheritance assets as the effect of nomination varies in accordance with the intention of the account holder. The purpose of nomination, among others, is to enable the nominee to claim the proceeds from the account without having to wait for the issuance of letters of representation from the administrative bodies. In this case, statutes relating to inheritance matters such the Wills Act 1959 and Probate and Administration Act 1959 for instance, are not applicable to the assets under nomination especially those assets involving non-Muslims participants since they are not treated as inheritance assets (Ismail, 2009). Unlike other inheritance assets which require letters of representation and other related documents, nomination bypasses such requirement which therefore, significantly saves the beneficiary from incurring additional time and expenses. As convenient as it sounds, the irony lies within the nomination effect itself as it tends to be a subject of dispute among the family members which occur after the death of the account holder. Misconception as to the position of the nominee, for example, is one of the possible factors which led to arguments between the beneficiaries.

In practice, the nomination is only effective when a person has been named as a nominee by the policy owner or the account holder. In other words, the nomination is optional as it only takes effect upon the fulfilment of nomination requirement imposed by the institution. Nominated asset will be subjected to the nomination rules (Abu Bakar, Zahid & Markom, 2015). The absence of nomination will render the asset to be in a similar position with other inheritance assets, whereby the letters of representation will be required for the extraction of these assets. This rule applies to all types of nomination irrespective of the different type of accounts by various institutions.

The status of nomination remains as long as no change is made to the list of the nominee or until the nominee predeceases the policy owner or the account holder (Abu Bakar, Zahid & Markom, 2014). Among the issue under nomination is the inconsistent effect as to how the asset should be treated. In other words, there is uncertainty as to whether the nomination asset should be addressed as inheritance asset or such asset belongs entirely to the nominee. This is due to the different effect of the nominated asset, causing difficulty in in estate administration and leading to misunderstanding to the beneficiaries as to whether they are entitled to such asset.

It should be noted that nomination rules differ between Muslim and non-Muslim subjects. Since this study focuses on the nomination under the IFSA 2013, the central discussion covers the nomination involving Muslim participants in relation to the takāful benefit.

Nomination under the Islamic Financial Services Act 2013 (IFSA 2013)

Under the IFSA 2013, the provision regarding the status of takāful benefit under nomination is provided by Section 146 and Schedule 10 of the Act. Under this provision, the nomination of takāful is available in two forms. The first form is, the nominee receives the takāful benefits in his capacity as an administrator. In this case, the takāful benefit would be treated as inheritance asset and the nominee is responsible to distribute the takāful benefit to the beneficiaries in accordance with the rule of fara’id (Noor & Abdullah, 2008). The proceeds from the takāful benefit do not solely belong to the nominee as he is only entitled to a secured portion of such proceeds in his capacity as the beneficiaries under fara’id (Elatrash & Soualhi, 2016). From one point of view, nomination under this context is considered beneficial to the beneficiaries in relation to the administration of the estate as no letters of representation is needed since such asset falls under the nomination rule, yet the distribution is made in accordance to the inheritance rule. The appointment of the nominee as the administrator can safeguard a fair distribution of asset in line with the rules of inheritance, including fara’id and distribution under mutual consent. This goes in line with the very principle of the takāful itself which serves as a risk reduction instrument in Islamic financial and wealth planning (Alma’amun & Kamarudin, 2014). Nevertheless, the nominee is expected to be honest in distributing the asset as to avoid any unwanted case of keeping the asset for himself. This problem may happen if the nominee failed to understand his role as the administrator where such ignorant could lead to disputes among beneficiaries.

The second form of nomination is where the nomination is to be treated as conditional hibah. This nomination is quite new in the current practice in comparison to the first form, although certain takāful provider has introduced the similar concept previously. Literally, the nominee in this situation will receive the proceeds as a gift from the deceased upon his death. In other words, he receives the proceeds without having to distribute it to others. Such effect is relatively similar to the nomination of non-Muslim cases under EPF account where the nominee is entitled to the whole sum of the asset.

Under this position, the takāful benefit is not subject to the inheritance distribution, hence disregards the issue of whether the deceased died testate or intestate as these two determine how the asset are to be distributed. In other words, the takāful benefit shall be received solely by the nominee as gift by the takāful holder. However, unlike any other normal gift, the concept of hibah in this case, is conditional upon certain pre-determined rules such as the gift will only take effect after the death of the deceased. Also, the gift itself is not absolute as it can be revoked by the takāful holder at any time during his lifetime.

In relation to the effect of nomination, it should be understood that IFSA 2013 is empowered to overrule another ruling which was previously enforced in relation to the takāful benefit. This is stated in Paragraph 13(2) of the Tenth Schedule which states:

“This schedule shall have full force and effect notwithstanding any inconsistent with or contrary to any other written law relating to probate, administration, distribution or disposition of the estates of deceased persons, or in any practice or custom in relation to these matters.”

The above provision is considered as a prevailing section which supersedes all other regulations and previous practices in relation to the nomination of takāful benefit. This means that upon the enforcement of IFSA 2013, the effect of nomination in takāful shall only be restricted to these two options. Therefore, other practices by the takāful operators which are inconsistent with this ruling are no longer applicable. It is now under the discretion of the takāful participant either to treat the nominee as an administrator or as a recipient under the conditional hibah.

Overview of Nomination under the Financial Services Act 2013 (FSA 2013)

To elaborate on the point, nomination under the Financial Services Act 2013 (FSA 2013) and Employees Provident Fund (EPF) account will be made as an example and comparison to IFSA 2013. In relation to insurance, the current nomination under the life insurance and personal accident policy are governed by the FSA 2013. The details on the nomination are provided by Section 130 cross-refer to Schedule 10 of the Act. Unlike Islamic Financial Services Act, the effect of nomination in FSA 2013 can be divided into three options, depending on the parties who are named as nominees. In the first option, the nomination shall be treated as a trust to three categories of persons namely the spouse, child and the parents of the policy owner. For instance, if the policy owner named his child as the nominee, the policy money shall then be given to the wife as a trust. In this situation, a competent trustee will be in charge of managing the trust to ensure that the children will get the trust benefit according to the determined period. This goes in line with the concept of insurable interest under the common law where the insured’s immediate family members are assumed to have insurable interest over the life of the insured.

As the policy money takes in form of a trust, the nominee who is the recipient shall enjoy the proceeds in accordance with the trust rules. In this case, the policy money is not treated as an inheritance estate and therefore not subject to distribution to other beneficiaries. In addition, the money received is not subject to any of the deceased’s liabilities. This means that the policy money cannot be used to settle any liabilities owned by the deceased as trust is a different subject altogether. From a positive point of view, this nomination provides a sort of security to the trust receiver as the trust money will not be treated as a debt settlement instrument, unlike other types of the inheritance estates. In practice, the trust proceeds will be channelled to the beneficiary periodically for a specified period determined by the trustee and not in a lump sum. This is to ensure that the welfare of the beneficiary is secured until the exhaustion of the trust fund. On a negative side, allowing the policy owner to choose any of the three means that, the other two persons might be left out, contrary to the inheritance rules where the deceased’s spouse and children are given priority which can be seen in Section 6 of the Distribution Act 1958. The creation of a trust under nomination, however, only applicable to the parties who are non-Muslims.

The second option of the nomination treats the nominee as the administrator of the policy money. Similar to the option provided under IFSA 2013, the nominee, in this case, acts as an administrator for the policy money whose duty is to distribute the money in accordance with the inheritance distribution rule. The practice is similar to EPF and nomination under the first option in IFSA 2013, except that this option applies to non-Muslims as well. In other words, the policy money will be distributed according to whether the deceased died testate or intestate which are governed by the Wills Act 1959 and Distribution Act 1958 respectively. Contrary to the first option, the policy money is considered as the deceased’s estate, which is similar to the other type of inheritance estate.

The third option bears similarity with EPF account in relation to the non-Muslim whereby the nominee, other than the parties mentioned in the first clause, receives the money as the sole recipient without having to distribute it to others. This option is inter-related to the second choice where the policy owner is authorised to decide whether to treat the nomination as a second or a third option. In any case, the insurer must notify in the nomination form the status of nomination as decided by the policy owner. Again, these three forms of nomination shall only takes effect if there is nomination made by the policy owner.

Overview of Nomination under the Employees Provident Fund Act 1991

Disputes among the Muslim subjects are mainly due to the unclear status of the nomination and nominee The position of the nominee, however, is clear in cases involving the non-Muslims as the law provides that the nominee shall be the exclusive recipient of the deceased’s nominated account. The effect of nomination in this context is that the nominee is considered as the sole recipient of the account. For instance, if the deceased’s mother was named as the only nominee, nomination entitles her as the owner of the proceeds from the account, even if there are other beneficiaries. This is because nomination asset is not subject to inheritance distribution should there be a valid nomination made.

The position of nomination in EPF account for Muslim nominees, however, is different. Under the rule set by EPF, a nominee is regarded as a recipient of the asset in the capacity of an administrator for that account. Upon obtaining the said money, he must then distribute it to other beneficiaries under fara’id or upon mutual consent, subject to the agreement by other beneficiaries. The same position has been issued in Fatwa made by the National Fatwa Committee in 1973. The ruling states that upon the obtainment of the account money, the distribution should then be made according to the inheritance distribution as EPF account is considered as inheritance asset and this justifies as a reason why the nominee receives the money in his capacity as an administrator. Thus, the method of distribution of the nomination account is treated in accordance to the inheritance rules.

The position of the nominee is regarded as similar to the personal representative of the deceased’s estate which is to distribute the money to other beneficiaries based on the entitled portion. However, he is only accountable to the EPF account, not other assets. Therefore, both the nominee and the personal representative of the deceased’ estate must understand the limitations of their roles. It is important to note that the role of the nominee and the personal representative appointed by the administrative bodies should not overlap with each other. Although both share the same task, the scope of the nominee in distributing the money is only restricted to the EPF proceeds. In this situation, the personal representative needs to ensure that the nominee is distributing the money accordingly.