The legal personal representatives of a deceased person entitlement to payment

Posted on September 1st, 2014

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by Mark Sullivan

Mark Sullivan is a Director at Mullane & Lindsay in Newcastle and specialises in Family, Relationship and Matrimonial Law

Q: How should the legal personal representatives of a deceased person deal with entitlement to payment on the deceased’s superannuation upon death?

A: read on…

Our office was recently discussing all things Queensland – and it wasn’t only the State of Origin series. Judgment in a Queensland Supreme Court case of McIntosh v McIntosh [2014] QSC 99 was delivered in mid May and its potential impact on the community was not lost on the trial judge. Justice Atkinson wrote:

This decision deals with an area of the law which has growing practical importance in view of the growth of personal superannuation: how should the legal personal representative of a deceased person deal with the entitlement to payment of the deceased person’s superannuation upon death. As can be seen from this case, the amount invested in superannuation and receivable by way of death benefit may be well in excess of the amount of funds in the estate.

The facts of the case were as follows:

  • The member J died intestate in July 2013.  He had suffered from bi polar disorder, was not married and he had been living with his mother for about 30 of his 40 years and they shared household expenses and emotional support.
  • J’s parents had been separated for 36 years.  There was a factual dispute about the quality of J’s relationship with his father.
  • The net assets of J’s estate were $80,000 (most of which comprised the proceeds from a life insurance policy). He also had superannuation benefits with 3 different super funds amounting to $453,748.69.
  • J’s mother applied to be appointed to be the administrator of J’s estate.   Intestacy law meant that both his parents became entitled to receive 50% of the estate proceeds.
  • Later, J’s mother made separate claims to each of the trustees of the 3 super funds for payment to her (not J’s estate) of his superannuation death benefits on the basis of their interdependency relationship. The benefits were paid to her and held by her in an account.
  • J’s father’s lawyers sought information about the superannuation from the mother and questioned on what grounds she felt that she should be entitled to this money rather than J’s estate and argued that she had a duty to maximise the estate.
  • J’s mother applied to the Supreme Court for advice/directions as to whether she was required to account to J’s estate for the superannuation benefits or could retain it for herself. She argued that she was entitled in her own right to the superannuation as it was not an estate asset, whereas J’s father argued that under S.52 of the Succession Act that she, as legal personal representative of J’s estate, had a fiduciary duty not to allow a conflict of personal interest and duty to occur.

In handing down its decision that J’s mother was in breach of her fiduciary obligations as legal personal representative (LPR) of the deceased estate, Judge Atkinson held as follows:

  • When J’s mother applied to the superannuation funds for the money to be paid to her personally rather than to the estate, she put her own interests ahead of her duty as LPR to make an application for the funds to be paid to the estate.
  • Therefore, she was in a situation of conflict which she resolved in favour of her own interests.   In doing so, she breached her fiduciary duty as administrator of the estate and also her duty under S.52(1)(a) of the Succession Act 1981.
  • An administrator of an intestate estate also has a statutory duty to apply the superannuation funds to the estate under Reg 6.22, which imposes a limitation on the cashing of benefits in regulated superannuation funds in favour of persons other than members or their LPRs.   On the death of a member, the benefits can be cashed in favour of either or both of the member’s LPR or one or more of the member’s dependants. As there was no binding death benefit nomination, the superannuation fund trustees were obliged to comply with Reg 6.22 and pay the benefits to the LPR or J’s dependant(s).
  • A trustee of a super fund has discretion to make the payment to either or both of a member’s dependant(s) and their LPR. Although the discretion resided in the trustee of the super fund, J’s mother, as the LPR in this case, was duty-bound to call upon the trustee to exercise its discretion in favour of the estate.
  • J’s mother must therefore account to the estate for the benefit which she gained for herself in breach of that duty to call upon the trustee to exercise its discretion in favour of the estate.

This meant J’s mother had to transfer the payments received from the three superannuation funds from herself to J’s estate and the effect of this was instead of receiving 100% of the funds she received only half, with J’s father receiving the other half.

I expect the facts of this case are not dissimilar to many instances coming to Claims Committees of Superannuation Trustees for consideration and determination in respect to death benefit claims. Some common features include the untimely death of members with mental health problems, often with low member balances except for payments into their member account of death insurance; broken or dysfunctional families; living with one parent whilst possibly alienated from the other; the absence of a will and little other assets in their estate.

I suggest that this case highlights the need for our clients to have valid and effective wills and, where possible, to make binding death benefit nominations in respect to their superannuation entitlements.

If J had made a binding death benefit nomination (BDBN) in favour of his mother personally, then no conflict of interest would have arisen. The BDBN would have been a clear choice in favour of his mother; it would have removed the discretion of the trustee and the possibility of the mother putting her interests ahead of the estate.

If J had made a will naming his mother as the executrix it is likely that the outcome would have been different because the appointment of his mother as executrix was likely to have been the act of a testator exercising a testamentary choice. Where a will maker, with knowledge of the facts, imposes a duty which is inconsistent with a pre-existing interest which he or she has in another capacity, then the LPR might still be able to validly pursue their personal interests. So it is arguable that the mother might have been able to successfully claim the death benefits for herself personally in circumstances where J had left a will and deliberately appointed her as executrix.

It is always good advice to clients to suggest that they make a will, and as this case shows, such advice applies even when clients may not own much property but are members of super funds with good insurance cover, and have some family dysfunction.

Mark Sullivan is a Director at Mullane & Lindsay, and practises extensively in Family, Relationship and Matrimonial Law. If you require any assistance in this area please contact Mark Sullivan to arrange a consultation or contact our Newcastle office.

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