When a member dies without a binding nomination, there is often uncertainty as to how death benefits should be paid. This can sometimes put executors and administrators of the member’s will in a difficult position.
In 2014, it was found in the decision of McIntosh v McIntosh [2014] QSC 99 that an administrator of an estate was obliged to account to an estate for superannuation death benefits paid by an industry fund to her in her personal capacity. The basis of the decision was the conflicted position in which the administrator had voluntarily put herself. This decision was widely regarded as having no application to an executor, whose appointment by the will-maker was viewed as implicitly authorising such a conflict.
Now, the decision of Brine v Carter [2015] SASC 205 draws executors into the same questions and creates significant potential consequences in relation to:
- choice of executor;
- clauses in Wills;
- the use of reversionary pensions and binding nominations.
McIntosh
In McIntosh, the deceased died intestate. His next of kin were his mother and father, who were divorced. With the consent of the father, the mother obtained letters of administration on 24 September 2013. On 30 September 2013, the mother made applications to the deceased’s three external superannuation funds as a dependant of the deceased (on the basis of an interdependent relationship) for superannuation benefits to be paid to her personally. The trustees of the funds exercised their discretion accordingly.
The Qld Supreme Court found part of the duty of the administrator of the estate to call in the estate was to claim the super death benefits, and the fact that Mrs McIntosh had failed to do so was a breach of her duty for which she may be held liable.
Brine v Carter
The relevant facts of this case were as follows
1. Professor Brine was survived by his de facto Ms Carter and 3 sons from a prior relationship
2. In his will he appointed Ms Carter and the sons as executors and provided a life interest for Ms Carter in his principal residence and another property and gave the rest of his estate to his sons and grandchildren.
3. He left 2 member accounts with UniSuper. One, an indexed pension (a defined benefit account), was only able to be paid to a spouse on death. The second account was able to be paid to spouse, children or the estate of Professor Brine. Professor Brine had provided a non binding nomination during his lifetime to UniSuper, and indicated that Ms Carter was his spouse for the defined benefit pension and that his preferred recipient of the other pension was his estate.
4. For some months, Ms Carter was found to have failed to disclose the extent of the super benefits to the sons and that the estate and each of them was a potential beneficiary of one of the pensions.
5. Once the sons found out about the super and the potential to claim, the 3 of them claimed the benefit as executors of the estate, however UniSuper exercised its discretion in favour of Ms Carter.
6. The Court found:
- an executor has a duty to collect assets of the estate;
- an executor is in a fiduciary position where they must not, without prior authorisation, use knowledge or an opportunity for their own personal interest, or pursue a personal benefit where it conflicts with their duty;
- the obligation is not limited to profits arising from the use of the fiduciary position;
- a breach of these obligations results in an obligation to account to the person to whom the obligation is owed and which has been received by reason of the use of knowledge or opportunity and arises irrespective of an absence of bad faith; and
- a fiduciary would not be liable if they were authorised to act in a position of conflict, either expressly or by implication from the circumstances of his or her appointment or by the informed consent of the beneficiaries.
7. Importantly, unlike in McIntosh, the Court found that there was no distinction between an administrator and an executor in this regard. The Court found that the usual implication of consent to act in a conflicted position afforded to an executor does not apply to superannuation claims because those positions needed to be contrasted with “a sophisticated superannuation policy governed by a complex trust deed in which the trustee has discretionary functions.”
8. Once the sons were aware of their capacity to claim and allowed Ms Carter to pursue her own claim and continue as an executor, the Court found that they consented to her doing so, and in that case, there was no breach of her fiduciary obligations.
9. Notwithstanding this breach by Ms Carter she was not required to account for the benefits paid to her to the estate, because the sons had made a claim and the trustee had exercised its discretion so that there was not sufficient connection between the breach and the benefit she received.
10. The Court noted that had the sons not been aware of the position and not made a claim, Ms Carter would have been liable to account.
Implications
1. For Willmakers who want certainty about who receives their superannuation benefits, these cases illustrate the significance of a valid binding nomination or reversionary pension. Validity is key (see e.g. SMSFD 2008/3, Munro v Munro [2015] QSC 61 and Donovan v Donovan [2009] QSC 26) and we have seen numerous issues recently including:
- documents invalidly signed or completed;
- documents expired after the member has lost capacity; and
- documents prepared after an invalid deed of variation or invalid appointment of a trustee. A significant proportion of “off the shelf” documents we have seen are not valid in our view.
2. For Willmakers who want their spouse to benefit from their super but have different beneficiaries in their estate (hello second relationships), they should consider taking steps to mitigate the risk of a conflict of interest arising. This could include an express authority in the Will regarding the spouse claiming and receiving death benefits personally.
3. These questions are more significant in the SMSF context, given that the Court is more likely to find causal connection between the benefit and the breach in the case of an SMSF.
4. If Ms Carter had been the sole controller of a SMSF and exercised the discretion in her own favour, then subject to the terms of the deed (including whether there is a provision allowing the trustee to act in a position of conflict) and whether an application had been made on behalf of the estate, she may have been more likely to have been found liable to account.
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