superannuation, super, wills, binding death nomination,

It’s common to believe that when planning your estate, your superannuation will be taken care of by your will. But superannuation is not covered by a will, and it’s important to know this because for many people, superannuation is one of their biggest assets.

While nomination forms exist to take care of this problem, they are usually inadequate and fail to address more complex asset structures.  It’s important to note that many super funds do not allow Binding Death Benefit Notices, and there is no obligation on the super fund trustee to carry out your wishes in this regard.

A recent example of how complicated the situation can be occurred in the South Australian Supreme Court case of Brine v Carter [2015] SASC 205, in which the deceased was a member of a public offer super fund. He appointed his 3 adult sons and his de facto spouse as the executors of his Will. As such, under the fund trust deed these persons (and the deceased’s estate) were also eligible recipients for consideration of the trustee’s discretion in terms of the payment of death benefits from the super fund. In other words, the trustees of the super fund could choose pay the super into the estate or directly to an individual.

The deceased had two accounts with the super fund. Before he died, he wrote to the fund trustee to nominate his spouse to be the beneficiary of his indexed pension account, whilst the beneficiary of his other account was to be his estate because he had provided for his sons under his Will. However these were not binding nominations.

super, estate planning, beneficiaryAfter the deceased died, his de facto spouse initially contacted the super fund and sought to have both of the deceased’s super accounts paid solely to her as the dependent spouse. Meanwhile she misrepresented to her co-executors (the three sons) that they and the estate were not eligible to receive any of the super so that she had to receive it all. Subsequently the sons found out from the super fund that in fact they and / or the estate could be considered for the exercise of discretion of the trustee to receive a death benefit payment from the fund (although the trustee did warn them that the trustee’s practice was to invariably exercise its discretion in favour of a dependent rather than the estate, even if the deceased had made a non-binding nomination in favour of the estate).

Once the three sons discovered the spouse’s misrepresentation of the situation, they lodged a claim to the fund trustee that it should exercise its discretion in favour of the estate. However, as they were previously warned, the trustee ended up exercising its discretion in favour of the dependent spouse as to 100% of the death benefits.

When the matter came to the Court, it was held that, notwithstanding the misrepresentations by the spouse and breach of her fiduciary duties as an executor up to the point in time when the three sons discovered her deceit, thereafter the actions of the sons in making a claim on behalf of the estate (without the spouse’s involvement) effectively meant that they had accepted that she was not acting as an executor in the matter so that she was therefore entitled to pursue her claim for payment in her own personal capacity and not as a co-executor. Since she was no longer acting as an executor, she was therefore not in breach of her duties as such, and therefore was entitled to receive the payment herself without having to account to the estate for it.

Ironically, if the three sons did not make a separate competing claim (which effectively operated as a consent to the spouse claiming in her own right), the spouse would have been held to be in breach of her duties as an executor and have to pay the money to the estate! As a result, notwithstanding her dishonest conduct, she won the case!

To do-Binding Death NominationThe lesson in this case is that separate arrangements must be made for your superannuation. With any of the commercially available super funds, you can seek to exercise some control through the use of Binding Death Nominations, which direct where the asset is to be paid upon your death. However, many people make nominations that are not binding, and the trustees of the super fund do not have to follow their instructions. Indeed, in the case cited above, the practice of the trustees of the super fund was to pay the asset to a person rather than the estate, regardless of the deceased’s wishes – and did so.

This situation does not allow for anyone with a more complex set of circumstances, a complicated asset structure, a blended family or the flexibility to allow for changing circumstances.

To deal with this problem effectively, a self-managed super fund together with a carefully drafted will may be the answer. However, you should seek advice from your accountant and from a specialist in wills and estates prior to making this decision.

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