- WA case involved widow and two young children and modest death benefit
- NSW case involved sizeable estate, children from first marriage and dead locked SMSF trustee
- Maybe this area needs wholesale reform?
As many super professionals are aware the last five years have brought us an increasing number of Court cases involving super fund death benefits.
In this article I would like to detail the events of two important recent cases – one from WA and the other from NSW.
The only common aspect about these two cases is that neither involved a Binding Death Benefit Nomination – which means of course that if these documents had existed we might have had cases about the validity of these documents – or a valid will.
WA Supreme Court case
A middle aged man died intestate in May 2015 with few personal assets. He is survived by his widow and their two young boys (now aged 13 and 10). In WA’s intestacy laws, the surviving spouse would receive the first $50,000 plus interest and the residue would be divided equally between the spouse and the two young children.
The major interest in the case was death benefits from four retail super funds totalling about $588,000. As noted above he never completed for any of these funds BDBNs nor gave an indication to a super fund trustee how he would like his death benefits paid.
The man’s widow, Denise Burgess, applied (April ’16) and was granted (June ’16) administration rights of the deceased estate. Under WA’s intestacy laws, an administration application is ordinarily brought by a beneficiary.
In February, October and December 2016, she received death benefits totalling $428,000 from three different super funds.
The current case concerned Mrs Burgess’ conflict between herself as administrator of the estate and potential beneficiary of the super fund death benefits. She asked the Court how she should manage this conflict for the December ’16 death benefit payment (of about $355,000) and the benefit that had yet to be paid (about $160,000).
The February ’16 payment was excluded from the current case because it was made directly to her before Mrs Burgess was appointed administrator of the deceased estate. The October 2016 payment was excluded because it was a modest sum.
It should be noted that she had used some of these death benefit proceeds to purchase a family home and car – which the Court acknowledged provided direct benefits to her children. And with the agreement of the WA Public Trustee she placed $90,000 into bank accounts for her children.
In coming to its decision, the Court referred to the Queensland Supreme Court case – McIntosh v McIntosh  QSC 99.
Mrs Burgess asked the Court to find that she was not under a similar obligation to Mrs McIntosh in that case to put the deceased estate above her own personal interests.
What did the WA Supreme Court decide?
The Court observed that, “the facts underlying the present application are relatively commonplace, but the problem they present is legally complex”.
It said that Mr Burgess could have prevented all this by having a valid will and/or valid Binding Death Benefit Nominations. However to be effective the will would have had to absolve his widow from any conflict, if appointed his executor, if she acted in exclusively in her own interests by applying to receive personally any super fund death benefit entitlements. You would have to doubt if many individuals writing their own wills would think of including this type of provision.
The Court found that “the underlying factual circumstance here are more benign than those which underlay the decision in McIntosh v McIntosh”.
However the Court decided that a deceased estate’s administrator “fiduciary position is such that it requires the fiduciary’s undivided loyalty in pursuing exclusively the interests of beneficiary parties – to the exclusion of all other rival interests. The rigour of the fidelity required of trustees and those who discharge equivalent positions by courts of equity over centuries has never diminished … The interests of a deceased estate require a 'champion' who cannot be seen (even if they are not) to be acting half-heartedly, 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.”
The Court acknowledges that the result of this decision is “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.”
NSW Supreme Court case
David William Grant died in December 2015 aged 55. He was survived by his second wife and three adult sons from his first marriage. One of these sons was a stepson. His deceased estate was worth $4.4m. There was also a SMSF death benefit of approximately $860,000.
Mr Grant had prepared a will prior to his second marriage leaving everything in equal shares to his three boys. The court examined if the will lapsed upon his marriage or was made in its contemplation. It decided that the will lapsed upon his marriage and as a result he died without a will.
As noted above he also died without a Binding Death Benefit Nomination.
The Supreme Court had appointed his widow and one of his sons joint administrators of the deceased estate.
Stepson's Family Provision claim
As there was no will under NSW intestacy rules the majority of the estate was distributed to the deceased’s wife. Under these rules the stepson was not entitled to anything and given this outcome he claimed under NSW’s Family Provision rules.
The Court deemed him to be an eligible beneficiary. He sought at least $750,000. The deceased’s widow argued he might be eligible for $600,000. The Court decided he deserved $750,000.
All parties had agreed that the monies in the SMSF could be used to pay some or all of whatever amount the Court awarded him. To this end all parties agreed that the super fund trustee should be joined as a party to the current case. The Court accepted this agreement.
Court permits SMSF money to be used to pay Family Provision claim
The Court said it could allow the SMSF money to be used for the family provision claim if there were “special circumstances”. All parties had agreed that the super fund’s death benefit could be used in this way.
There were three other reasons the Court agreed special circumstances existed in this case:
- The majority of the non-super fund deceased estate was made up of a house near North Sydney which the deceased had said he would like his wife to live in if she wished after his death
- “Recognition that the management of the corporate trustee of the superannuation fund by the administrator’s of the deceased estate is deadlocked so as to preclude any orderly decision being made” – the judgement notes that decision making was deadlocked because of all the competing claims against the estate.
- The use of the super funds money in this way therefore provided a neat solution
In coming to its decision, the Court referred to the Queensland Supreme Court case – McIntosh v McIntosh  QSC 99Read case
You can read this judgement here.Read case
You can read the judgements here.Read case