NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Estate Planning

Estate Planning Tools: Will, Trust, Gift and Nomination Explained

Updated 11 October 2026 · Fact-checked

Estate planning tools are legal instruments that move wealth to chosen people. A will works after death, a trust can work in life and after death, a gift transfers ownership immediately, a nomination names who receives an asset on death, and a power of attorney works only while the giver is alive. Whether a nominee owns the asset depends on the asset.

Understand Estate Planning Tools: Will, Trust, Gift and Nomination

Estate planning means deciding who gets your assets, when, and how. Each tool does a different job. You must know what each one does, when it starts working, and what it cannot do.

A will is a written statement of how you want your assets shared after death. It takes effect only on death. You can change or cancel it any time while you are alive and mentally sound. A later will replaces an earlier one. A codicil is a supplement that changes part of a will. A will may need a court process called probate to be proved. In India, probate is compulsory for wills of Hindus, Buddhists, Sikhs and Jains made in the Presidency towns of Kolkata, Chennai and Mumbai, or for such wills made elsewhere that cover immovable property in those towns. Elsewhere it is not compulsory, though it can help prove a will. If you die without a valid will, your assets go by the personal succession law that applies to you. This is called intestate succession.

A trust is an arrangement where the settlor hands over assets to a trustee, who holds and manages them for the beneficiaries. A trust can start during your life or take effect on death. It helps with control: you can set conditions, stagger payouts, and protect minors or dependants who cannot manage money. A revocable trust can be taken back by the settlor. An irrevocable trust generally cannot be revoked by the settlor once it is created, unless the trust deed or law allows it.

A gift is a voluntary transfer of an asset without payment. It takes effect now, not on death. Once the gift is complete, you no longer own the asset. Tax rules on gifts are covered separately under income tax.

A nomination names a person to receive an asset such as a bank deposit, mutual fund units, shares or an insurance policy when you die. What the nominee gets depends on the asset and the law that governs it.

Demat shares and mutual fund units: the Companies Act and SEBI rules entitle the nominee to receive or transmit the securities on the holder's death. The company or depository deals with the nominee. The nominee's position against legal heirs or a will depends on the governing law and case law, so do not say the nomination overrides them.
Insurance: under Section 39 of the Insurance Act (as amended in 2015), a nominee who is one of the policyholder's specified close relatives, such as the spouse, children or parents, is the beneficial owner of the money.
Bank deposits and other assets: in the general principle taught for the exam, the nominee receives the money and holds it for those entitled under the will or succession law.

So never answer 'the nominee is always the owner' or 'the nominee is never the owner'. Read the asset first. A power of attorney lets another person act for you while you are alive. It ends on your death.

Key formulas to remember

When each tool takes effect: Will → on death | Gift → immediately | Trust → during life or on death | Nomination → on death of the holder | Power of attorney → during life only; Most MCQs test timing. Match the tool to the moment it starts and ends. A trust's effect follows its deed, and probate rules for wills vary by place and by the religion of the person making the will.
Roles in a trust: Settlor creates → Trustee manages → Beneficiary benefits; Do not mix the three. The trustee holds and manages; the beneficiary enjoys the benefit.
Nominee vs legal heir: Demat shares / MF units → nominee is entitled to receive or transmit the securities; position against legal heirs depends on governing law and case law | Insurance → nominee who is a specified close relative (such as spouse, child or parent) is beneficial owner under Section 39 | Bank deposit and other assets → in general principle, nominee receives the money and holds it for those entitled under the will or succession law; The answer depends on the asset and governing law. Identify the asset before deciding who has the final claim.
Will changes: Will revocable during life | Codicil = change to a will | Latest valid will prevails; A will does nothing until death.
Power of attorney ends: POA ends on death of the giver; POA cannot be used to carry out wishes after death.

How to solve Estate Planning Tools: Will, Trust, Gift and Nomination questions

Use this method for any question on estate planning tools. Most questions turn on timing, control or ownership.

1Read the question and underline the need: transfer after death, transfer now, control over use, easy payout, or someone to act while alive.
2Find the timing word: 'during life', 'on death', 'immediately', 'after incapacity'.
3Match the timing to the tool using the effect-timing rule.
4Check who ends up as owner. If a nominee is involved, identify the asset first: demat shares and mutual fund units, insurance (close-relative nominee such as spouse, child or parent), or a bank deposit. The answer differs for each.
5Check control. If the client wants conditions, staged payouts or protection for minors, think trust.
6Check revocability. Wills can be changed; gifts once complete cannot be taken back; a trust can be revoked only if it is set up as revocable.
7Eliminate options that mix up roles, such as calling the trustee the settlor.
8Pick the option that fits timing, ownership and control together.

Quickest way: Timing and ownership shortcut

When to use it: Use when the question asks which tool suits a stated need and you have under a minute.

Ask: now or after death?
Now and full transfer: gift. Now but someone acts for you: power of attorney.
After death and simple wishes: will.
Needs control, conditions or protection: trust.
Needs quick payout of a specific asset: nomination, but check the asset. For demat shares and mutual fund units, the nominee is entitled to receive or transmit them, and the position against legal heirs depends on governing law. On insurance, a close-relative nominee such as a spouse, child or parent is the beneficial owner under Section 39. On a bank deposit, the nominee only holds the money for legal heirs.

Common mistakes in Estate Planning Tools: Will, Trust, Gift and Nomination

Assuming a nominee is always the full owner, or never the owner
The nominee gets the money first, and students memorise one blanket rule.
Fix: Check the asset. For demat securities and mutual fund units, the nominee is entitled to receive or transmit them, and the position against legal heirs depends on governing law. A close-relative nominee on insurance, such as a spouse, child or parent, is the beneficial owner under Section 39. For a bank deposit and many other assets, the nominee holds the money for the legal heirs.
Thinking a will works while the person is alive
People confuse a will with a gift or a trust.
Fix: A will operates only on death and can be changed until then.
Using power of attorney as an estate tool after death
The word 'attorney' suggests a lasting legal authority.
Fix: A POA ends when the giver dies. It is a tool for life, not for succession.
Mixing up settlor, trustee and beneficiary
All three are connected to the same trust and the terms sound similar.
Fix: Settlor creates, trustee manages, beneficiary benefits. Say it in that order.
Assuming a gift can be reversed like a will
Students carry over the idea that planning documents can always be changed.
Fix: A completed gift moves ownership now. A will is the one that stays changeable during life.
Choosing a will when the client wants control over how money is used after death
A will feels like the default tool.
Fix: When conditions, staged payouts or protection for minors matter, a trust is the better answer.

Worked examples

Example 1

A client wants her minor children to receive money in stages after her death, with someone trusted managing it until then. Which tool fits best: nomination, gift or trust?

Show the solution

The need is control over payouts after death for minors.
A nomination only names who receives an asset. It gives no conditions or staging.
A gift moves ownership now and gives no continuing control.
A trust lets the settlor appoint a trustee to manage assets and release money to beneficiaries under set terms.

Answer: Trust.

Example 2

Ravi names his brother as nominee on a bank deposit. He also writes a will leaving all his assets to his wife. Ravi dies. Who has the rightful claim to the deposit, in general principle?

Show the solution

The asset is a bank deposit. In the general principle taught for the exam, the bank pays the nominee, who receives the money for those entitled under the will or succession law. Nomination does not by itself make the nominee the owner.
The will states Ravi's wishes for his assets after death and leaves everything to his wife.
On this principle, the wife, as will beneficiary, is the person entitled to the money, not the nominee.
The brother, as nominee, receives the money and is expected to pass it to her.

Answer: In general principle, the bank pays the brother as nominee, but he holds the money for those entitled under the will, here the wife. This is the general principle taught for the exam; the final position depends on succession law.

Example 3

Meera nominates her husband on her life insurance policy. Her will leaves all her assets to her son. Meera dies. Who is the beneficial owner of the policy money?

Show the solution

The asset is an insurance policy, so Section 39 of the Insurance Act (as amended in 2015) applies.
The nominee is her husband, a spouse. A spouse is one of the policyholder's specified close relatives, such as the spouse, children or parents, whom the Section 39 beneficial-owner provision covers when named as nominee.
So the husband, as nominee, is the beneficial owner of the policy money under Section 39, even though the will leaves her assets to her son.

Answer: The husband, as spouse nominee, is the beneficial owner under Section 39.

Exam tips

Most questions test timing. Memorise: will and nomination on death, gift now, POA only in life, trust either.
Watch for the words 'absolute owner' next to a nominee. Check the asset: it can be right for a close-relative nominee (such as a spouse, child or parent) on insurance under Section 39. It is not the safe answer for demat securities or mutual fund units, where the nominee is entitled to receive or transmit them, and it is wrong for a bank deposit.
When the stem mentions minors, conditions or protection, lean towards a trust.
Keep the three trust roles straight; options often swap settlor and trustee.
Wrong answers lose 25% of the question's marks, so a 2-mark caselet question costs more than a 1-mark MCQ; guess only if you can eliminate options.

Practice questions from Basics of Estate Planning

Estate Planning Tools: Will, Trust, Gift and Nomination: frequently asked questions

What is the difference between a will and a trust?

A will takes effect only on death and can be changed until then. A trust can start in life or on death and uses a trustee to manage assets under set terms. A trust gives more control over how and when beneficiaries receive money.

What is the difference between a nominee and a legal heir?

A nominee is the person named to receive an asset when the holder dies. A legal heir, or a person named in a will, has the claim under succession law. Whether the nominee keeps the asset depends on the asset: for demat securities and mutual fund units the nominee is entitled to receive or transmit them, and the position against legal heirs depends on governing law. A close-relative nominee on insurance, such as a spouse, child or parent, is the beneficial owner under Section 39. For a bank deposit the nominee holds the money for those entitled.

What is a family trust in estate planning?

It is a trust where the settlor transfers assets to trustees to hold for family members as beneficiaries. It allows conditions, staged payouts and protection for dependants. The terms are set in the trust deed.

Does a power of attorney work after death?

No. A power of attorney lets someone act for you only while you are alive. It ends on your death, so it cannot carry out succession wishes.