In considering your estate plan you should at all times bear in mind that the courts will apply the strict fiduciary duties that the law casts on legal personal representatives, trustees of superannuation funds and others even if the outcomes may not be fair.
Avoiding an expensive Supreme Court hearing about conflict issues is relatively easy if all or some of the following have been made:-
- a will which includes a suitably worded conflicts clause;
- a binding death benefit nomination; or
- a reversionary pension (if there is a pension being paid).
Burgess v Burgess
This recent decision of the Supreme Court of Western Australia has confirmed a decision of the Supreme Court of Queensland four year ago (McIntosh v McIntosh) that an administrator of an estate is bound to vigorously claim death benefits for the estate and any claim made personally is in breach of the duties the administrator owes to the estate.
In Burgess, Mrs Burgess (a widow) asked the court to decide if conflicts of interest (in a number of scenarios) arose seeing she:-
- was an administrator of the estate of her late husband (who had not made a will);
- had children under the age of 18 (who were beneficiaries of her husband’s estate with her in terms of WA intestacy laws);
- wanted to claim super death benefits (from 4 different retail super funds) for herself personally;
One of the funds paid a small benefit to the estate. The three different scenarios (and the respective rulings with respect to the other three funds) were therefore:-
- before the widow was appointed administrator of the estate she applied for payment of the death benefit from the first and second funds. The first fund paid the death benefit to her before she was appointed administrator. The court ruled there was no conflict of interest and she was entitled to keep the death benefit payment paid by the first fund;
- with respect to the second payment (i.e. after the widow was appointed administrator) the court ruled there was a conflict of interest and she had to pay the death benefit payment back to the estate;
- at the time of the court hearing the widow had not applied for payment from the remaining super fund. The court ruled she was bound to apply for the payment on behalf of the estate (although the remaining super fund was not bound to pay it to the estate and could exercise their discretion to pay it to the estate or the widow and/or children directly). Importantly, the Court said the widow as administrator must actually apply on behalf of the estate as opposed to merely informing the super fund of the existence of the estate as a potential beneficiary.
Mrs Burgess was not trying to do her children out of some money, did nothing wrong in any sense and as soon she was alerted to the legal minefield she had wandered into she arranged for the Public Trustee to look after the interests of her children and she applied to the Court for directions about what to do.
From the Horse’s Mouth
The following comments of Justice Martin illustrate the legal issues involved and how easy it was for Mrs Burgess to find herself to be caught up in such a mess without even trying:-
1. The facts underlying the present application are relatively commonplace, but the problem they present is legally complex.
13. This application throws up an issue concerning the likely conflict of interest between the position of a widow seeking that her late husband's superannuation funds all be paid to her in the capacity as the spousal dependant of the fund's deceased member - in contrast to the fiduciary duties the widow is bound by and must observe in her capacity as the administrator (ie, trustee) of an estate, where that estate must be administered not only for her interests but also in the interests of her two young children as the other beneficiaries of the intestate estate.
15. At the outset, I observe that the unfortunate circumstances posed for resolution could have been avoided if the deceased man had done two things differently prior to his death. First, if he had executed a will, then the undesirable scenario for his surviving family of dealing with an intestacy situation would have been avoided. Preferably, his will would have said in explicit terms that there was no difficulty for his widow, if she was appointed as his executor, in acting exclusively in her own interests by applying to receive personally and receiving the full entitlement to any superannuation fund proceeds to which he might be or become entitled in the event of his death.
16. Secondly, if the man had signed and presented a binding nomination document to the trustees of the four superannuation funds in which he held entitlements (including any life benefits), then such an instruction would ordinarily have bound the trustee to distribute those funds, say, on a 100% basis to his widow (rather than to his estate) if so directed, rather than leaving the distribution decision wholly to the trustee's own discretion.
17. Regrettably, neither of those two events happened here. Hence, the present problems arise in rather adverse underlying factual circumstances, which might otherwise have been easily avoided. In a less than optimal factual scenario, I need to bear in mind the aphorism that 'hard cases make bad law'. The implications of any decision rendered towards these facts could carry wider implications later for less worthy facts.
24. I should note that there has not been the slightest suggestion of any misdealing conduct or misappropriation of any of the superannuation payment funds received by Mrs Burgess to date.
84. In an age of increasing moral ambivalence in western society the rigour of a court of equity must endure. It will not be shaken as regards what is a sacred obligation of total and uncompromised fidelity required of a trustee. Here, that required the administrator not just to disclose the existence of the (rival) estate interest when claiming the superannuation moneys in her own right from the fund trustee. It required more. It required her to apply as administrator of the estate for it to receive the funds in any exercise of the fund trustee's discretion.
85. On my analysis, the approach of Atkinson J taken in McIntosh cannot be faulted as a matter of law. I would respectfully apply it here, even though the underlying facts are different. The interests of a deceased estate require a 'champion' who cannot be seen (even if they are not) to be acting halfheartedly, or with an eye to achieving outcomes other than an outcome that thoroughly advances the interests of the estate - to the exclusion of other claimants.
91. The result is, of course, messy for the family and less clear cut than might otherwise have been desired. However, that is a result of wider trustee integrity policy principles of the law which take effect and prevail. They are of vital importance and are applicable to universal circumstances extending well beyond the present rather regrettable factual situation. The present is a situation, I reiterate, that might have been avoided by the two measures I earlier mentioned.
Avoiding the Conflict and the Court
Whilst the ruling in respect of the first death benefit payment might encourage someone to hold off making an application to become an administrator I would not recommend anyone doing this. It was clear that Mrs Burgess had not been guilty of quasi-deceit (i.e. equitable fraud) which was not the case in McIntosh.
It might not be so clear if it could be established that the delay was in any way contrived.
McIntosh and Burgess make the position abundantly clear in the case of the administrator where there is an intestacy. It is clear that the deceased has not impliedly authorised a conflict by nominating an Executor.
The position is not as clear cut in the case of the executor who is appointed by will (and there is no specific provision about super death benefits and conflicts). If there is no specific provision it could still be argued the mere appointment as executor authorises the conflict. That is certainly an argument and possibly a good one. It is by no means certain and a court hearing would still be on the cards.
It goes without saying the best ways to avoid the problem arising (and the Court system) are to:-
- make a will appointing an executor and include a specific clause allowing the executor to personally claim the death benefit/s;
- make a binding, binding death benefit nomination.
SMSFs
There are other considerations (and things that can be done) if the super fund involved is an Self Managed Superannuation Fund.
With SMSFs it is always crucial to make sure that the person left as trustee, is the person you want to be making decisions about paying the death benefit. All the issues mentioned above usually fall by the wayside if the right person is left in control.