Superannuation Death Benefit and Conflicts of Interest

When a person dies intestate (without a will) and has a superannuation entitlement, their superannuation fund does not automatically form part of their deceased estate. In the absence of a binding death benefit nomination, there is discretion by the trustee of the superannuation fund to pay the death benefit to the deceased’s estate or to the deceased’s dependants personally. A potential conflict arises when the administrator of an estate seeks to have the superannuation funds paid directly to them as a dependant of the deceased rather than applying for the superannuation death benefit to be paid to the estate. This article deals with that situation.

Burgess v Burgess

The 2018 Supreme Court of Western Australia decision of Burgess v Burgess [2018] WASC 279, confirmed the earlier decision of McIntosh v McIntosh [2014] QSC 99, which held that the administrator of an estate is bound to claim death benefits for the estate as part of their fiduciary duties and that any claim made personally to them, as a dependent, is in breach of their duties.

The deceased in Burgess v Burgess died intestate, leaving his wife and two minor children. The deceased’s estate was to be paid in thirds to his wife and two children, under the laws of intestacy in Western Australia.

The deceased held four different superannuation funds at the date of his death. Prior to being appointed as administrator of the estate, the deceased’s widow applied to the superannuation providers, as an eligible dependant, to have the proceeds of the fund paid to her personally.

The widow made an application to the court as to whether a conflict of interest arose from her position as administrator of her husband’s estate and her personal claims for his superannuation death benefits.

Superannuation death benefits in Burgess v Burgess

The Supreme Court had to consider the situation in relation to each of the super funds in this case. The situations were as follows. Prime Super had paid the death benefit to the widow before she had applied to be appointed as the Administrator of her late husband’s estate. REST Industry Fund paid the death benefit to the widow approximately six months after she had applied to be appointed as Administrator of the estate. IOOF Super Fund paid the death benefit to the deceased’s estate. AMP had not yet made a decision as to who would receive the death benefit at the time the matter was heard by the court.

An issue of conflict arose from the widow seeking to have her late husband’s superannuation death benefits paid to her personally in her capacity as a spousal dependant, while acting as the administrator of his estate. The major question for the court was whether the widow should be asked to account to the estate in respect of the funds received from REST Industry Fund, as a conflict arose between the fiduciary duty owed by her as administrator of the estate and her personal interest in claiming the member benefits be paid to her directly as the dependant spouse.

There was a potential direct conflict between the personal interests of the widow and the interests of her two children, as they were each entitled to a distribution of the deceased’s estate. Another question for the court was: at what time does a conflict arise?

In Burgess v Burgess, the Supreme Court held that a conflict arose at the time the Supreme Court issued a Grant of Administration to the applicant.

In respect of the payment of the death benefit of the superannuation funds, the court held as follows:

1. There was no issue of conflict arising with the payment of the first fund, as the proceeds were paid to the widow prior to her being appointed as administrator of the estate. The widow had not breached her fiduciary duty when she applied for the funds in her capacity as the dependant spouse of the deceased.
2. In respect of the second fund, a conflict existed at the time the proceeds were paid to the widow because she had, at this time, already been appointed as administrator of the estate before the payment was made. The court held that the widow held a fiduciary duty to pursue the interests of the beneficiaries of the estate to the exclusion of her own personal interest as dependant spouse.
3. There was no issue of conflict in respect of the third fund as the proceeds were paid to the deceased’s estate and not to the widow personally.
4. The outcome of its decision in this matter would impact upon the decision rendered by the trustee of fourth fund and that, in applying the reasoning of Atkinson J in McIntosh v McIntosh, the widow should make an application on behalf of the deceased’s estate, as administrator of the estate, to AMP for the proceeds to be paid to the estate and not herself personally.

The effect of the decision in Burgess v Burgess is that, if a superannuation fund is not subject to a binding death benefit nomination, the administrator of the estate has a fiduciary duty to apply for the proceeds of the superannuation fund to be paid to the estate and not themselves personally as a dependent of the deceased.

Avoiding Potential Conflicts of interest

If a person dies without leaving a will and leaves behind an eligible dependent who may apply for both a payment of a superannuation death benefit to them personally and a grant of administration, then the dependent risks a potential conflict.

A person can protect their dependants from this potential conflict and a potential court proceeding in one or both of the following ways:

1. By making a will appointing an executor and including a specific clause allowing the executor to personally claim any superannuation death benefits;
2. By making a binding death benefit nomination.

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.