Checklist for children turning into majors.

It is a Big Milestone in our lives when our children reach majority. At 18 years, the person is recognized as an adult eligible to casttheir vote in  elections, have assets in their name without any mention of guardian and also can have their own driving licenses.

Many parents make investments in the name of their minor children for various reasons – from earmarking investments separately for children to saving taxes. However when the child reaches majority, the financial assets must have a re-look.

There are various processes which require submission of many documents to convert an account from minor to major. The two important steps to start the process is

1. Correction or reissue of PAN Card with signature and photograph/ Application of new PAN in the name of major, if not already done.
2. Obtain an Id proof like passport, Driving Licenses etc. with recent photo, signature and address updated.

Request for new PAN Card

Since copy of PAN card is mandatory for most of the financial transactions, it is important to apply for a new PAN Card with photo and signature of the child included and address change, if any. This is important as copy of PAN is mandatory for most financial assets and it also serves as a proof of identity. However, the PAN number of the child remains the same.

Please refer the below link for more details:

http://www.tin-nsdl.com/pan/faq-pan-reqfornewpan.php

Conversion of bank accounts from minor account to major/regular account

All banks have certain rules and regulations for minor account holder. Many banks even have certain accounts specifically designed for minors such as ICICI Young Star Account, HDFC Kids Advantage Account etc.  These type of accountsprovide few privileges to minor account holder – withwithdrawal and deposit allowed after 10 years of age, and debit card also issued after 10 years of age. They could also do the transactions and use the internet banking facility, kid friendly freebies and preferential rates of interest for some minor account holders.

However when a child turns major, these accounts have to be mandatorily converted to major accounts. It depends on the rules and regulations of the bank on how they convert a minor account to a major one. Some banks upgrade the bank account to a regular saving account using the same account number. Some banks request a new regular account to be opened and transfer the balance to this account and close the minor account. On having a regular savings account, the child will be issued a cheque book and debit card with her/his name on it. The guardian name given earlier will be removed.

The document required for conversion/upgradation from minor to major bank account are as below:

1. Copy of PAN Card self-attested
2. Age Proof like School Leaving Certificates of State Boards, ICSE, CBSE etc., Birth Certificate, Passport etc.
3. Address Proof – Passport, Electricity Bill, Voter Id etc.
4. Id proof such as Passport/Driving License/Aadhar etc.

Having a regular bank account for the child is highly important as this is required to change the status of Mutual Funds, Demat Accounts etc.

Conversion/Transfer of assets such as FDs, RDs etc. in banks

The transfer/conversion of assets such as FDs/RDs in banks from minor to major is typically done after the bank account is converted to a major account. The process for change is similar to that of savings account. However, the linked savings account to which the maturity amount is to be credited has to be updated.

Changing Status of Mutual Funds from minor to major

The most important step before change of status from minor to major is to get KYC done for the child. The required documents for individual KYC are:

1. Updated KYC Form
2. Copy of PAN attested with signature
3. Address Proof(Passport, Electricity Bill, Voter Id, Driving License etc.)

Once the KYC gets done, to change the status of the Mutual Funds from major to minor, the following document are required:

1. PAN Card copy with self-attestation
2. Address Proof (Passport Copy, etc.) with self-attestation
3. KYC proof
4. Birth Certificate as a proof
5. Bank Details showing change from Minor to Major account along with cancelled chequewith name printed on the same and should be self-attested.

A sample online form can be seen on clicking the link below:

https://www.camsonline.com/InvestorServices/COL_ISMinor%20attains%20Major%20form.aspx

Shares and corresponding Demat Account

A Demat account can be opened and shares can be traded/held in a child’s name through a guardian. When the child turns major, the change/conversion to a major or regular account depends on the regulations of the brokerage firm.

Some firms request for a new account to be opened in the name of the major child and transfer the existing holding to the new account. The minor account is then closed.

Some firms allow the same minor account to continue but the child has to complete all the formalities required for opening a new demat account. The child also has to sign a new agreement with the Delivery Participant (DP) like NSDL or CDSL. The guardian details entered earlier will be deleted.

https://www.cdslindia.com/downloads/faq/02.Demat%20CDSL%20Way%20-%20II%20-%20Account%20Opening.pdf

Converting minor PPF account into major

PPF account can be opened for a minor by any of the parents or guardians. There are two options possible when the PPF account matures:

When PPF account of minor matures before he turns major

In this case, the guardian can withdraw the maturity amount or choose to extend the tenure by any number of years If the tenure is extended, then by the end of the first extension tenure, the child would have turned major. The child has to submit photo, birth certificate, cancelled cheque with name included and address proof to change the status to major for a PPF account.

When PPF account matures after the child turns major.

The child has to submit copy of PAN card, birth certificate, cancelled cheque with name included and address proof to change the status to major for a PPF account. The maturity amount in this case is tax free in  the child’s name.

Post Office Monthly Income Schemes(POMIS) – changing status from minor to major

POMIS accounts can be opened in the name of a minor if the child is 10 years of age and above. There is a separate limit of Rs.3,00,000 for the minor apart from the limit of the guardian. On turning major, the child has to apply for conversion of minor account to major along with birth certificate, copy of PAN Card and cancelled cheque of the child’s bank account. After the conversion, all income arising from this account will be considered as income of the child only. http://www.indiapost.gov.in/mis.aspx

Insurance Policies:

For insurance policies, many situations can arise for a minor depending on the policy, the policyholder and the nominee.

When the nominee of an insurance policy is a minor

The policyholder is supposed to specify an appointee if the nominee of the policy is a minor. The appointee is entitled to withdraw the policy amount on behalf of the minor. In case no appointee has been mentioned, the minor has to wait till majority to claim the amount. On turning 18 years of age, the child has to submit age proof like School leaving certificate and birth certificate, bank account details with cancelled cheque and policy document mentioned.

When a minor is the policyholder and life insured (in case of child policy)

When a policy is in the name of a minor and the policy benefits will be paid according to the payout terms in the policy. If the policy payouts are scheduled after the child turns major, the policy amount will be paid to the child’s bank account. To claim the amount, the child has to submit the age proof and cancelled cheque of own bank account along with a copy of the policy document to the insurer.However depending on features of the policies, some policies do make the pay outs to parents/guardians of the child to utilize for expenses related to the child.

When the policy is a child plan with life of parent insured and nominee is the child

In such policies, the regular payouts if any are made to the parent to meet the regular expenses of their children. However on the death of a parent before the child turns major,  the proceeds will be paid to the children or the legal guardian or the appointee of the policy as the situation arises. The child will receive the benefits on turning major.

It is important to note that only child policies are issued in case of minors. These may or may not include life cover for the children. Also, the maturity benefits and regular pay outs if any,  for child policies are mostly paid after the child turns 18 years of age when the child enters college. Since there are a wide variety of child policies available with different features and policy terms, the procedures to change the status from minor to major is different for different policies or it may not be required at all.

As listed above, the procedure for changing the status from minor to major varies for different assets. However the most important prerequisites for all procedures is to have a PAN card with photo and signature of the child and a regular bank account in the name of the child who has attained majority.

It is also important to note that once the status of the assets are changed from a minor child’s to a major’s name, the parents/guardians would lose all rights on it. The child has every right to use, withdraw, redeem or close the accounts according to their  wish. Also if the assets in the child’s name generate any income which are taxable, the taxes have to be paid in the name of the child and will not  be clubbed with the parents’ income, unlike when child was a minor. Also, the parents cannot enjoy the benefit of tax-free income of Rs.1500 per year per minor child up to a maximum of two minor children

Akhila Muralidhar

Senior Para Planner- Dilzer Consultants Pvt Ltd