The majority of Australians will die with substantial funds in superannuation, but the proceeds of superannuation do not automatically form part of their estate. There has been concern for some time about the conflict which arises when the deceased's legal personal representative seeks to have the superannuation proceeds paid directly to them as a dependant of the deceased rather than paid to them in their capacity as the legal personal representative of the Estate.
In the recent Supreme Court of Queensland decision of McIntosh v McIntosh [2014] QSC 99, it was held that the administrator of a deceased estate was in breach of her fiduciary duties because she did not take active steps to have the deceased's superannuation death benefits paid to the estate, instead preferring her own interests by applying to the superannuation funds to have the proceeds paid to her personally as a dependant of the deceased.
In this Alert, Partner Luke Mountford, Associate Laura Hanrahan and Solicitor Leisa Hickey summarise the importance of the recent Queensland Supreme Court decision McIntosh v McIntosh [2014] QSC 99.
Key points
- The Court held that the administrator of a deceased estate was in breach of her fiduciary duties because she did not take active steps to have the deceased's superannuation death benefits paid to the estate, instead preferring her own interests by applying to the superannuation funds to have the proceeds paid to her personally as a dependant of the deceased.
- In the absence of a binding death benefit nomination, the trustee of a deceased's superannuation fund has discretion to pay the death benefits to the deceased's estate or to his or her dependants. The Court held that while the discretion lies with the trustee, the deceased's legal personal representative has a duty to call on the trustee to exercise it.
- There is a conflict of interest which arises when a legal personal representative is also the sole beneficiary under a non-binding death benefit nomination, which highlights the importance once again of dealing appropriately with superannuation proceeds as part of your estate planning.
Facts
The deceased died intestate at the age of 40. He was not married and at the time of his death he lived with his mother who cared for him as he suffered from bi-polar disorder. The deceased's parents separated when he was very young and the deceased had lived with his mother for most of his life.
The deceased's mother successfully applied to be appointed as the administrator of her son's estate (Estate) which had about $80,000 worth of assets in it. Under the intestacy rules, the deceased's Estate would be divided equally between his parents. The deceased also had three superannuation accounts, the death benefits of which totalled just over $453,000. The deceased had made non-binding death benefit nominations (DBN) for each fund in favour of his mother.
The deceased's superannuation benefits did not automatically form part of his Estate. Following her appointment as administrator, the deceased's mother successfully applied to each of the superannuation funds to have all of her son's death benefits paid to her personally on the basis that she was in an interdependency relationship with him.
In response to enquiries from the deceased's father's solicitors regarding superannuation, the deceased's mother's solicitors stated that as it did not form part of the Estate, their client was not required to account to the Estate for it. Following further correspondence from the father's solicitors, the mother applied to the Court for a declaration that she was entitled to receive the superannuation death benefits personally, and that she was not required to account to the Estate for them. The Court disagreed.
Findings
Atkinson J held that in applying to have the death benefits paid to her personally, the deceased's mother had breached:
- her duty under section 52(1)(a) of the Succession Act 1981 (Qld) to collect and get in the real and personal estate of the deceased and administer it according to law; and
- her fiduciary duty as the administrator of the deceased's estate to avoid a conflict of personal interest and duty occurring.
The Court held that an "administrator of an intestate estate has a duty to apply for payment of superannuation benefits to the estate."
In the absence of a binding DBN, the trustee of a deceased's superannuation fund has discretion to pay the death benefits to the deceased's estate or to his or her dependants. The Court held that while the discretion lies with the trustee, the deceased's legal personal representative has a duty to call on the trustee to exercise it.
The deceased's mother was ordered to pay all of the proceeds of the superannuation death benefits to the deceased's Estate for division in accordance with the intestacy rules, which in this case, was equally between herself and the deceased's father.
Importantly, the Court has provided some clarity on conflicts by drawing a distinction between:
- where a testator appoints an executor under his or her Will and that person is also the sole beneficiary under a non-binding DBN; and
- where the deceased dies intestate and a person who is the sole beneficiary under a non-binding DBN voluntarily applies to become the administrator of the deceased's estate.
In the first situation, it is considered that the testator has appointed the executor knowing that there will be a conflict between the executor's duties and his or her personal interests, and accepting that conflict. The exception does not however extend to the second scenario where a person voluntarily puts himself or herself into a new position of conflict.
What have we learnt from McIntosh?
There is a conflict of interest which arises when a legal personal representative is also the sole beneficiary under a non-binding DBN, which highlights the importance once again of dealing appropriately with superannuation proceeds as part of your estate planning.
The conflict of interest in this case would have been avoided if the deceased had nominated his mother as the sole beneficiary under a binding DBN and not a non-binding DBN. It would also have been avoided if the deceased's mother had not applied to be appointed as the administrator and had only applied for payment of the superannuation proceeds.
Irrespective of a conflict, a legal personal representative should apply to have the deceased member's death benefits paid to the estate to maximise the amount for distribution to the beneficiaries. If for any reason that application is not made, the deceased's death benefit will not form part of the estate and the legal personal representative maybe in breach of their duties.
How far does a legal personal representative have to go to discharge their duties? Is completing and submitting the superannuation fund claim form enough? Or must they object to the decision if the superannuation fund trustee exercises their discretion not in favour of the estate? Will we see disappointed beneficiaries taking action against legal personal representatives for not doing enough to have the superannuation fund trustees exercise their discretion in favour of the estate?
This case has provided some much needed clarity in this area, however, we are only beginning to scratch the surface of this intersection between deceased estates and superannuation.
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