When death benefits are available to creditors of a bankrupt

Posted on September 15th, 2017

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When it comes to bankruptcy and superannuation, it is well established that a lump sum death benefit payment from a regulated super fund to a bankrupt is not available to creditors. The 2016 Federal Court decision of Trustees of the Property of Morris (Bankrupt) v Morris (Bankrupt) [2016] FCA 846 confirmed this.

In July of this year the Federal Court again looked at the issue of bankruptcy and superannuation death benefits, but from a different perspective.

In the case of Cunningham (Trustee) v Gapes, in the matter of Gapes (Bankrupt) [2017] FCA 787, the question asked of the Court was whether a death benefit which passed through the estate of a deceased, and was ultimately distributed to a bankrupt, was protected from creditors. The short answer – no.

The Court ordered that when the death benefit passes through an estate, to a bankrupt beneficiary, it is available to creditors and vests in the Trustee in Bankruptcy as at the date of distribution. The exception in Section 116(2)(d)(iv) of the Bankruptcy Act is not satisfied when payment of the death benefit passes through the deceased estate.

The Federal Court ordered summary judgement in this matter; meaning it was satisfied there was a high degree of certainty about the ultimate outcome of the proceedings and that it was justified in dealing with the matter without allowing it to go to trial in the ordinary way.

The matter of Morris was specifically distinguished from the case of Cunningham.

Cunningham shows that a death benefit received by a bankrupt directly from a super fund is a protected payment and not available to creditors, but that a payment from an estate to a beneficiary is not a protected payment even where those funds are derived from a death benefit.

Lana Black, Solicitor at Mullane & Lindsay Solicitors, NewcastleLana Black is a Solicitor at Mullane & Lindsay Solicitors and practices extensively in estate planning and administration. If you require any assistance in this area please contact Lana Black to arrange a consultation or contact our Newcastle office.

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