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Superannuation Death Benefits and Conflict of Interest

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It is becoming more common for a person’s superannuation to be their most valuable asset upon their death.  Unfortunately, many people remain unaware of the importance of making provision for what happens to their superannuation upon their death, causing problems for their loved ones left behind.

What may cause these problems is the lack of legal knowledge that an entitlement under a superannuation fund does not form part of the assets of a deceased Estate. If the trustee of a superannuation fund exercises his/her discretion to pay a deceased’s death benefits to their Estate, or to particular persons, the trustee’s decision may not reflect what the deceased may have wanted.

In 2018, the Supreme Court of Western Australia considered at what point in time a person may personally apply, as a dependent, for the payment of death benefits and at what point in time a conflict of interest arises, if that same person is also the Executor (or Administrator) of the deceased’s Estate.

Burgess v Burgess [2018] WASC 279

Background

The deceased died aged 45 without leaving a Will. The deceased was survived by his wife and two young sons.

The deceased’s wife became the Administrator of his Estate.  Under Western Australia’s intestacy laws, the Estate was to be split between her as the deceased’s surviving spouse and their two children.

At the date of his death, the deceased was a member of four different superannuation funds. Each policy carried an associated life insurance policy, which was activated upon his death. Unfortunately, the deceased did not make any nominations during his lifetime giving the trustee of the superannuation funds instruction as to who he wished to receive the benefits of the funds upon his death.

The deceased’s wife made an application to each fund to have the proceeds of each superannuation fund paid directly to her, as an eligible dependant:

  1. the first fund made payment directly to the deceased’s wife, prior to her being appointed as the Administrator of her late husband’s Estate;
  2. the second fund made payment to the deceased’s wife about six months after she had been appointed as Administrator of the Estate;
  3. the third fund made payment to the Estate; and
  4. at the time of the decision, the fourth fund had not yet made a decision regarding to whom the funds would be paid.

The Supreme Court of Western Australia’s decision

Essentially, the Court held that there was a conflict of interest between the deceased’s wife acting in her capacity as the Administrator of her late husband’s Estate and in her own personal capacity, in claiming from the deceased’s superannuation fund as an eligible dependent.

An Administrator’s fiduciary duty requires them to do what is in the best interest of the beneficiaries to the exclusion of all rival interests.

The Court found that:

  1. the deceased’s wife could keep the death benefit she received from the superannuation fund before she was appointed as the Administrator, as there was no conflict of interest at this time;
  2. the deceased’s wife must account to the Estate in respect of the superannuation funds she received after she was appointed as the Administrator of the Estate, as a conflict of interest existed at the time that the payment was made;
  3. there was no concern in relation to the third fund, given it was paid directly to the Estate; and
  4. the outcome of the Court’s decision would impact the decision of the trustee of fourth fund who was yet to make a decision regarding where the funds would be paid.

How can you avoid this situation?

The Court noted that there were two things that the deceased could have done differently before his death:

  1. if the deceased had executed a Will, the intestacy situation would likely have been avoided and could have included provisions dealing with his wife acting in her personal capacity to apply to receive the full benefit of his superannuation; and
  2. if the deceased had signed a binding death benefit nominations for each fund, naming his wife as the beneficiary of his superannuation entitlements, the trustee of the funds would generally be bound to distribute those funds to his wife, rather than the trustee having discretion regarding the distribution of those funds.

What this means

The effect of this decision is that, in the absence of a binding death benefit nomination, once appointed by the Court, the Executor or Administrator of an Estate has a duty to apply for payment of superannuation death benefits in favour of the Estate.

The moral of the story? Make sure you have a valid up to date Will and binding death benefit nominations in respect of your superannuation death benefits that are consistent with your wishes.

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Comments

Natalie Mulvaney on Thursday, 06 February 2020 06:16

Definitely something we should all be aware of. Thank you for sharing this information Krysten.

Definitely something we should all be aware of. Thank you for sharing this information Krysten. :)
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Monday, 06 July 2020