How to ensure phased payouts to your nominee in the case of death

In the event of my death, I don’t want my son to receive the entire amount in my mutual fund (MF) investments, bank accounts and term insurance payout in one go. How do I ensure that he gets the money in phases like how it happens through an MF systematic withdrawal plan (SWP)? Can you please give me the details?

—Name withheld on request

To ensure that your son receives the money from your MF investments, bank accounts and term insurance payout in phases, similar to an SWP in MFs, specific legal arrangements need to be made. One effective method is setting up a trust under the Indian Trusts Act, 1882. Establishing a trust involves working with a trusted lawyer or financial advisor to create a legal entity that will manage the distribution of your assets according to the terms you set. Under the Indian Trusts Act, you can appoint a trustee who will manage the trust and ensure your son receives the payouts as per your instructions. The trust deed should detail the frequency and amount of distributions, ensuring a steady flow of funds rather than a lump sum.

Additionally, you can specify beneficiary instructions for your financial accounts under Section 45ZA of the Banking Regulation Act, 1949, which allows nomination for bank deposits. For MFs, Securities and Exchange Board of India (Sebi) regulations allow setting up an SWP for beneficiaries. This ensures that a fixed amount is withdrawn and transferred to his account periodically, in line with your phased distribution preference.

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For bank accounts, you can use the nomination facility under the Banking Regulation Act to facilitate phased payouts through a trust or direct instructions in your will. Fixed deposits can also be structured to release funds in installments. For term insurance, while the Insurance Act, 1938, typically facilitates lumpsum payouts, you can direct the proceeds to a trust, which can then distribute the funds according to your specified schedule.

Drafting a detailed will with conditional clauses is essential under the Indian Succession Act, 1925. This enactment governs the execution and legal validity of wills. Your will should include explicit instructions on how your assets should be distributed, specifying phased payouts for your son.

Appointing a trustworthy executor, as allowed under Section 211 of the Indian Succession Act, is crucial to oversee the execution of your will and ensure your instructions are accurately followed.

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Furthermore, hiring a financial advisor can provide professional management of the assets, ensuring periodic payouts. The advisor can invest the funds and release them as per the defined schedule, providing an additional layer of assurance.

Aditya Chopra and Amay Jain are, respectively, managing partner and senior associate at Victoriam Legalis, Advocates & Solicitors.