Estate & Succession Planning

Estate Planning Articles

Apr 222022
 

There is no time like now to be reminded that you cannot leave your Superannuation death benefits to chance. Even if you make a superannuation death benefit nomination, your super fund might not pay it as you have directed.

Peter McNamara has previously warned that you cannot assume that your Super will be dealt with per your Will:  See the article here.

That your super might be up for grabs was highlighted in the recent Federal Court case that upheld an Australian Financial Complaints Authority (AFCA) decision that supported BT’s decision to distribute an entire death benefit to the deceased’s estate as fair and reasonable.

If you can stay the distance, you can see the tortuous route for some superannuation death benefits.

The Facts

The deceased Mr Maxwell Walker made:

  • a non-binding Superannuation nomination to his deceased estate; and
  • a Will leaving the balance of his estate in equal shares to three people:
    • his ex-carer Ms Wan,
    • his ex-partner, and
    • another ex-partner’s son.

All would have gone to plan, with each getting their equal thirds.

However, the ex-carer Ms Wan put a spanner in the works when she applied to the Super Trustee (BT Funds Management Limited, BT) to be paid the death benefits as the deceased’s ex-spouse and dependent.

This resulted in four decisions by BT as the superannuation trustee to pay the death benefits:

  1. To Ms Wan as a de-facto spouse (giving her 100%);
  2. (When the son of the other ex-spouse objected) to the deceased estate (giving Ms Wan 33%, the ex-partner 33% and the other ex-spouse’s son 33%);
  3. (When Ms Wan objected) to the estate;
  4. To the estate because BT did not accept Ms Wan’s dependency because she was not a de facto spouse or in an interdependency relationship per the SIS regulations.

The issue was then escalated to the ACFA and finally to the Federal Court. These decisions said that the BT trustee and ACFA correctly decided to pay the death benefit to the estate. However, it was not a simple process.

If only Mr Walker had made a binding death benefit nomination to his estate!

As there was no Binding Death Benefit Nomination, the Trustee was bound by the Trust Deed for the account holding his superannuation benefits, managed by the BT Trustee.  The Trust Deed stated that on death the superannuation benefits should be paid to the deceased’s dependents amongst others in the Trustee’s absolute discretion. This same clause specified that the Trustee may take into account any non-binding nomination made by the deceased. These clauses of the Trust Deed were found by the Court to be consistent with the SIS Act and the SIS Regulations [19].

Ms Wan tried (and failed) to persuade the Court that the Trustee should have paid the entirety of the death benefit to her as a “dependant” of the deceased. This would have meant that the AFCA erred in law in upholding the Trustee’s decision.

However, the AFCA found that the Applicant was not a dependent at the time of the deceased’s death as the deceased was reluctant to label their relationship as one of dependency, referring to Ms Wan as a friend in his final will, and identifying Ms Wan as a “friend” not “partner” or “girlfriend”.

Ms Wan submitted to the Federal Court that the AFCA had misconstrued the definition of dependant by using a narrow interpretation. However, the Federal Court found that the AFCA correctly considered matters consistent with the broad definition of “dependant” including whether the Applicant was financially dependent on the deceased.

Take aways:

  1. If you want to limit your super trustee’s discretion, create a BINDING death benefit nomination. A non-binding nomination is just that – non-binding on the trustee.
  2. Seek legal, financial, tax and superannuation advice about not just your Will but also your Superannuation Death Benefit Nomination, whether you should nominate specific dependants or your estate, and whether the nomination should be binding or non-binding.

You can contact Peter McNamara for more information about your circumstances.

You may enjoy reading the full case here: Wan v BT Funds Management Limited [2022] FCA 302

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Oct 232018
 

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