Superannuation Death Benefits – Remedies for Disappointed Beneficiaries and Dependants
What remedies are available to a Disappointed Beneficiary of an estate or Dependant when a superannuation Trustee exercises discretion not to pay superannuation death benefits to the Legal Personal Representative (into the Estate) or to one dependant, but rather directly to another dependant?
When a person dies, their superannuation death benefits do not automatically form part of their estate. If a member has made a Binding Death Benefit Nomination (or “BDBN”) that is valid and effective at the date of their death, the superannuation Trustee must distribute the death benefits in accordance with the BDBN.
However, in the absence of a valid and effective Binding Death Benefit Nomination, the Trustee generally has discretion as to how it will pay a member’s superannuation death benefits.
Superannuation Trustee’s Discretion
Regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (the “SIS Regulations”) requires “a member’s benefits in a regulated superannuation fund [to] be cashed [or rolled over] as soon as practicable after the member dies”.
Regulation 6.22 of the SIS Regulations gives the Trustee discretion to pay superannuation death benefits to:
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- the member’s Legal Personal Representative (“LPR”) (to pass into their estate and to be dealt with in accordance with their Will, if any, or otherwise on intestacy); or
- one or more of the member’s dependants.
“Dependant” is defined in the Superannuation Industry (Supervision) Act 1993 (Cth) (the “SIS Act”) to include a member’s spouse, child and any person with whom the member has an interdependent relationship.
Two individuals will generally be seen to have an ‘interdependency relationship’ under section 10A of the SIS Act if they satisfy all the following elements:
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- they have a close personal relationship;
- they live together;
- one or each of them provides the other with financial support; and
- one or each of them provide the other with domestic support and personal care.
This gives the Superannuation Trustee wide discretionary powers to distribute the death benefit to one or more dependants of the member and not to their LPR (to be distributed with the rest of their estate).
If the Trustee decides to pay the superannuation death benefits to a dependant of the member, this may disappoint the beneficiaries of the member’s estate or other dependants of the member who might have expected or hoped to share in the superannuation death benefits.
Can a Disappointed Beneficiary or Dependant Contest a Superannuation Trustee’s Decision?
Disappointed beneficiaries or dependants may have the right to lodge a formal complaint with the Superannuation Complaints Tribunal (the “SCT”) to dispute the decision of a superannuation Trustee (except in the case of Self-Managed Superannuation Funds). The SCT was established under the Superannuation (Resolution of Complaints) Act 1993 (Cth) as an independent dispute resolution body which is an alternative to the court system.
It is important to note the very strict time limitations and conditions which apply to lodging a complaint after the Trustee’s discretion in making a decision has been exercised.
If a complaint is lodged with the SCT in time and compliance with the necessary conditions, the SCT must first try to settle the dispute must by an alternative dispute resolution practice called conciliation.
If the matter is not resolved at conciliation the SCT must fix a date for a review meeting, allowing a reasonable time for the parties to make written submissions in support of their position. While superannuation death benefits may not have been paid to a deceased member’s estate, at this stage the SCT may consider the person’s Will and whether there was any specific intentions expressed in relation to the superannuation when making its decision.
If no resolution can be found, the complainant (in limited circumstances) may escalate the matter to the court for review.
The Federal Court in Wilkinson v Clerical Administrative & Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 at 480 considered the grounds on which an exercise of a trustee’s power in the context of a superannuation fund could be challenged in a court. Heerey J quoted the statement of Northrop J from the Federal Court below:
Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settler, or without giving a real or genuine consideration to the exercise of the discretion. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable or unwise. Where a discretion is expressed to be absolute it may be that bad faith needs to be shown. The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness.
The test developed in Karger v Paul [1984] VR 161 has been widely applied by the courts. In this case, McGarvie J commented (at 163-164) that the decision should not be reviewed by the courts so long as the discretion was exercise by the Trustees “…in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred.” A court may, however, review a decision where the trustee chose to state their reasons for their exercise of discretion.
In summary, while a disappointed dependant or beneficiary can dispute the decision of a superannuation Trustee through the SCT, there are limited circumstances where the court will review the decision if the results are unsatisfactory. Only in the event where the Trustee fails to exercise their discretion with real or genuine consideration, acts in bad faith, or fails to exercise their power in accordance with the purposes for which it was conferred, may the Court choose to make a ruling against the Trustee (see also Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWCSC 945).
Implications
Over a person’s lifetime, a considerable amount of their wealth is accumulated and held in superannuation. In exercising their discretionary powers, the superannuation trustee can leave potential beneficiaries and dependants disappointed.
If you are a beneficiary of a superannuation member’s estate, or a dependant of a member, the best practice is always to prepare a strong case to inform or direct a Trustee’s discretion before the Trustee has made a decision. Conciliation may result in a better outcome if you are adequately prepared, however the process of disputing the decision of a superannuation Trustee can be a difficult and costly legal process without any guarantee of a change in decision. It is important to have legal representation to lead and support you through these processes.
If you are a member of a superannuation fund, the best thing to do is to consider how you want your superannuation death benefits to be paid and, if necessary, take steps to make your wishes binding.
If you would like to dispute the exercise of a Trustee’s discretion to pay superannuation death benefits a certain way, or want advice to take proactive steps in your estate planning
Please contact our Business Development Team on (07) 3252 0011 to book an appointment with our Estate Planning Lawyers today.
