WILLS AND SUPERANNUATION
Noel Davis, Barrister*
An important element of advising clients when drafting wills is the interaction of bequests made in the will and who a superannuation benefit held by the testator will be paid to.
However, the effect of the existence of the benefit and who it will be paid to is sometimes overlooked or is not adequately dealt with in the will or in instructions given to the trustee of the superannuation fund.
However, the effect of the existence of the benefit and who it will be paid to is sometimes overlooked or is not adequately dealt with in the will or in instructions given to the trustee of the superannuation fund.
Introduction
A superannuation benefit is often a substantial asset of a client (including youthful clients) because of the amount accumulated or because there is a significant insured death benefit in the superannuation fund.
However, in some instances where disputes have arisen in relation to deceased estates and the payment of superannuation death benefits, it is apparent that the existence of a superannuation benefit has not been considered in framing the will and in the instructions that were given by the deceased to the trustee of the superannuation fund as to the disposition of the benefit on death. Too often, those instructions have been inadequate, inappropriate or non-existent.
Amongst other issues, there have been occasions where directions have been included in a will as to how a superannuation benefit is to be distributed and they are inconsistent with directions that have been given to the trustee as to how the benefit is to be paid (see, for example the Western Australian Court of Appeal decision in Ioppolo v Conti [2015] WASCA 45). That, of course, causes confusion and can give rise to litigation. In the Ioppolo decision, the direction in the will was not followed because of an inconsistent nomination that had been made to the trustee by the member.
The interrelationship between an estate and a superannuation benefit
Ordinarily, a superannuation benefit does not form part of the estate of a deceased person because it is held by a trustee to be distributed in accordance with the trustee’s discretion or in accordance with binding instructions that may have been given to the trustee by the superannuation member, other than in a will.
However, in New South Wales, a superannuation benefit that does not form part of the actual estate can form part of the notional estate in an application to the court for a family provision order under the Succession Act 2006. Section 63(5) of that Act states that a family provision order can be made in relation to property that is not part of an estate, if it is designated as notional estate of the deceased. In Charnook v Handley [2011] NSWSC 1408 and Re Estate Grant, dec’d [2018] NSWSC 1031, superannuation benefits of the deceased were treated as notional estate for the purposes of making family provision orders that could not be satisfied out of the actual estates.
However, in the absence of a superannuation benefit being treated by a court as notional estate, it is payable in accordance with the decision of the trustee made in accordance with the terms of the trust deed and any valid directions that were given by the deceased member, as discussed below.
Payment of a superannuation death benefit
Most trust deeds governing superannuation funds give the trustee a discretion to pay a superannuation death benefit either to the deceased’s estate or to the deceased’s dependants in the proportions and manner that the trustee determines. Trustees usually favour payment to dependants rather than to the estate. That needs to be borne in mind in framing a will and the interrelationship between the will and the nomination or direction given to the superannuation trustee.
A superannuation “dependant” includes a spouse, de facto spouse, children and a same sex partner, regardless of whether they are financially dependent, as well as a person who was financially dependent on the deceased at the time of death. A person in an interdependency relationship (as defined in s10A of the Superannuation Industry (Supervision) Act 1993) with the member is also a dependant. Whether or not a couple were living in a de facto relationship or an interdependency relationship at the time of death of a member is often disputed in complaints about trustees’ decisions on the payment of death benefits.
Trustees usually ask people, at the time they become members, to provide the trustee with a nomination as to who the benefit should be paid to in the event of death but such nominations, if given, frequently become out of date because of divorces, separations, deaths or children born. Such nominations do not override the trustee’s discretion and, if they are out of date, may not be helpful to the trustee in exercising its discretion. In advising a client at the time of making a will, such nominations should be examined to determine whether they are out of date or no longer appropriate.
Superannuation members can avoid giving the trustee a discretion to determine who the death benefit is paid to by making a binding direction. Section 59(1A) of the Superannuation Industry (Supervision) Act 1993 and regulations 6.17A and 6.17B prescribed under that Act permit trust deeds to allow members to give binding directions to the trustee to pay a death benefit to nominated dependants or the member’s legal personal representative. Consequently, most trust deeds governing public superannuation funds and some self managed funds permit members to give binding directions to the trustee as to the payment of the benefit, thus overriding the trustee’s discretion.
A direction given in accordance with those provisions and accepted by the trustee is only valid if it was signed and dated by the member in the presence of 2 adult witnesses who are not named in the direction.
Such a direction expires on the earlier of revocation by the member and at the end of 3 years after the date on which it was signed. Such directions, therefore, have a limited life and clients need to be told to renew them every 3 years. A reminder by their solicitor each 3 years is, of course, helpful and is a useful means of having continuing contact with clients for whom wills have been drafted.
If a binding direction has expired or is invalid (including because it is in favour of a person who is not a dependant), the decision as to whom a death benefit is paid reverts to the trustee in exercising its discretion.
A possibility with this form of binding direction is that, when it expires, the client may have lost the capacity to give a fresh direction. An enduring power of attorney with the power to give a binding direction to the trustee may overcome this.
A minority of superannuation funds, including some self managed funds, have a provision in the trust deed which permits a different form of binding direction to be given which is not made in accordance with s59 and does not, therefore, expire after 3 years and does not have to be signed in the presence of 2 witnesses. If such a direction is given, it still needs to be reviewed regularly to determine whether it is still appropriate.
Disputes
Distributions of death benefits by superannuation trustees give rise to many disputes, which is to be expected given the amount of money that is often involved. Sometimes, the disputes are in relation to an insured death benefit payable in consequence of the death of a young person (perhaps without dependants), often as a result of an accident.
A person who has an interest in the death benefit of a deceased member can make a complaint to the Australian Financial Complaints Authority (AFCA) disputing the trustee’s decision as to how the benefit is to be paid. AFCA recently replaced the Superannuation Complaints Tribunal as the body to which superannuation complaints can be made. Decisions of the tribunal are on AUSTLII.
Generally, the complaint to AFCA has to be made within 28 days after the person has been notified by the trustee of its decision- s1056 of the Corporations Act 2001. The expression “interest in a death benefit” is not defined in s1056 and the expression, therefore, has its ordinary meaning. A person who comes within the definition of being a “dependant” of the deceased is clearly a person with an interest in a death benefit.
If the trustee has not given a person notice of its decision in relation to the payment of a death benefit, that person can make a complaint to AFCA in relation to the decision. AFCA can accept the complaint if it is satisfied that the complainant has an interest in the death benefit and it was unreasonable for the trustee not to give the complainant notice of its decision- s1056.
AFCA is required to endeavour to resolve the dispute by mediation but, if that is unsuccessful, AFCA conducts a hearing and makes a determination. In making a determination, AFCA will tend to favour payment to dependants rather than to the estate and, also, payment to a person who would have participated in the enjoyment of the benefit if the deceased had survived to retirement, such as a spouse, subject to dependent children of the deceased being provided for. Appeals to the Federal Court lie against determinations of AFCA.
An alternative to making a complaint to AFCA is for a person who disagrees with the trustee’s decision to commence Supreme Court proceedings against the trustee.
Advising clients
In advising clients when a will is being drafted or in reviewing the way in which they want their assets to be distributed on death, it is imperative that the prospective distribution of any superannuation benefit is also considered.
Often, that will involve considering whether any existing non-binding nomination to the trustee or a binding direction is still valid and is appropriate and has not become out of date because of changes in circumstances. If there is not an existing nomination or binding direction, the client should be advised about the possibility of making one.
In advising a client, after the death of a member, who wishes to contest a decision of a trustee on who the benefit is to be paid to, it is appropriate to consider the circumstances in which the decision was made, including whether it was consistent with a nomination or binding direction made by the deceased member. If it was made in accordance with a binding direction, it will be necessary to consider whether the binding direction was validly given and was still valid at the time of death.
*Noel Davis is a Sydney barrister, the author of the text The Law of Superannuation in Australia (LexisNexis) and is a former member of the Superannuation Complaints Tribunal deciding superannuation disputes.
A superannuation benefit is often a substantial asset of a client (including youthful clients) because of the amount accumulated or because there is a significant insured death benefit in the superannuation fund.
However, in some instances where disputes have arisen in relation to deceased estates and the payment of superannuation death benefits, it is apparent that the existence of a superannuation benefit has not been considered in framing the will and in the instructions that were given by the deceased to the trustee of the superannuation fund as to the disposition of the benefit on death. Too often, those instructions have been inadequate, inappropriate or non-existent.
Amongst other issues, there have been occasions where directions have been included in a will as to how a superannuation benefit is to be distributed and they are inconsistent with directions that have been given to the trustee as to how the benefit is to be paid (see, for example the Western Australian Court of Appeal decision in Ioppolo v Conti [2015] WASCA 45). That, of course, causes confusion and can give rise to litigation. In the Ioppolo decision, the direction in the will was not followed because of an inconsistent nomination that had been made to the trustee by the member.
The interrelationship between an estate and a superannuation benefit
Ordinarily, a superannuation benefit does not form part of the estate of a deceased person because it is held by a trustee to be distributed in accordance with the trustee’s discretion or in accordance with binding instructions that may have been given to the trustee by the superannuation member, other than in a will.
However, in New South Wales, a superannuation benefit that does not form part of the actual estate can form part of the notional estate in an application to the court for a family provision order under the Succession Act 2006. Section 63(5) of that Act states that a family provision order can be made in relation to property that is not part of an estate, if it is designated as notional estate of the deceased. In Charnook v Handley [2011] NSWSC 1408 and Re Estate Grant, dec’d [2018] NSWSC 1031, superannuation benefits of the deceased were treated as notional estate for the purposes of making family provision orders that could not be satisfied out of the actual estates.
However, in the absence of a superannuation benefit being treated by a court as notional estate, it is payable in accordance with the decision of the trustee made in accordance with the terms of the trust deed and any valid directions that were given by the deceased member, as discussed below.
Payment of a superannuation death benefit
Most trust deeds governing superannuation funds give the trustee a discretion to pay a superannuation death benefit either to the deceased’s estate or to the deceased’s dependants in the proportions and manner that the trustee determines. Trustees usually favour payment to dependants rather than to the estate. That needs to be borne in mind in framing a will and the interrelationship between the will and the nomination or direction given to the superannuation trustee.
A superannuation “dependant” includes a spouse, de facto spouse, children and a same sex partner, regardless of whether they are financially dependent, as well as a person who was financially dependent on the deceased at the time of death. A person in an interdependency relationship (as defined in s10A of the Superannuation Industry (Supervision) Act 1993) with the member is also a dependant. Whether or not a couple were living in a de facto relationship or an interdependency relationship at the time of death of a member is often disputed in complaints about trustees’ decisions on the payment of death benefits.
Trustees usually ask people, at the time they become members, to provide the trustee with a nomination as to who the benefit should be paid to in the event of death but such nominations, if given, frequently become out of date because of divorces, separations, deaths or children born. Such nominations do not override the trustee’s discretion and, if they are out of date, may not be helpful to the trustee in exercising its discretion. In advising a client at the time of making a will, such nominations should be examined to determine whether they are out of date or no longer appropriate.
Superannuation members can avoid giving the trustee a discretion to determine who the death benefit is paid to by making a binding direction. Section 59(1A) of the Superannuation Industry (Supervision) Act 1993 and regulations 6.17A and 6.17B prescribed under that Act permit trust deeds to allow members to give binding directions to the trustee to pay a death benefit to nominated dependants or the member’s legal personal representative. Consequently, most trust deeds governing public superannuation funds and some self managed funds permit members to give binding directions to the trustee as to the payment of the benefit, thus overriding the trustee’s discretion.
A direction given in accordance with those provisions and accepted by the trustee is only valid if it was signed and dated by the member in the presence of 2 adult witnesses who are not named in the direction.
Such a direction expires on the earlier of revocation by the member and at the end of 3 years after the date on which it was signed. Such directions, therefore, have a limited life and clients need to be told to renew them every 3 years. A reminder by their solicitor each 3 years is, of course, helpful and is a useful means of having continuing contact with clients for whom wills have been drafted.
If a binding direction has expired or is invalid (including because it is in favour of a person who is not a dependant), the decision as to whom a death benefit is paid reverts to the trustee in exercising its discretion.
A possibility with this form of binding direction is that, when it expires, the client may have lost the capacity to give a fresh direction. An enduring power of attorney with the power to give a binding direction to the trustee may overcome this.
A minority of superannuation funds, including some self managed funds, have a provision in the trust deed which permits a different form of binding direction to be given which is not made in accordance with s59 and does not, therefore, expire after 3 years and does not have to be signed in the presence of 2 witnesses. If such a direction is given, it still needs to be reviewed regularly to determine whether it is still appropriate.
Disputes
Distributions of death benefits by superannuation trustees give rise to many disputes, which is to be expected given the amount of money that is often involved. Sometimes, the disputes are in relation to an insured death benefit payable in consequence of the death of a young person (perhaps without dependants), often as a result of an accident.
A person who has an interest in the death benefit of a deceased member can make a complaint to the Australian Financial Complaints Authority (AFCA) disputing the trustee’s decision as to how the benefit is to be paid. AFCA recently replaced the Superannuation Complaints Tribunal as the body to which superannuation complaints can be made. Decisions of the tribunal are on AUSTLII.
Generally, the complaint to AFCA has to be made within 28 days after the person has been notified by the trustee of its decision- s1056 of the Corporations Act 2001. The expression “interest in a death benefit” is not defined in s1056 and the expression, therefore, has its ordinary meaning. A person who comes within the definition of being a “dependant” of the deceased is clearly a person with an interest in a death benefit.
If the trustee has not given a person notice of its decision in relation to the payment of a death benefit, that person can make a complaint to AFCA in relation to the decision. AFCA can accept the complaint if it is satisfied that the complainant has an interest in the death benefit and it was unreasonable for the trustee not to give the complainant notice of its decision- s1056.
AFCA is required to endeavour to resolve the dispute by mediation but, if that is unsuccessful, AFCA conducts a hearing and makes a determination. In making a determination, AFCA will tend to favour payment to dependants rather than to the estate and, also, payment to a person who would have participated in the enjoyment of the benefit if the deceased had survived to retirement, such as a spouse, subject to dependent children of the deceased being provided for. Appeals to the Federal Court lie against determinations of AFCA.
An alternative to making a complaint to AFCA is for a person who disagrees with the trustee’s decision to commence Supreme Court proceedings against the trustee.
Advising clients
In advising clients when a will is being drafted or in reviewing the way in which they want their assets to be distributed on death, it is imperative that the prospective distribution of any superannuation benefit is also considered.
Often, that will involve considering whether any existing non-binding nomination to the trustee or a binding direction is still valid and is appropriate and has not become out of date because of changes in circumstances. If there is not an existing nomination or binding direction, the client should be advised about the possibility of making one.
In advising a client, after the death of a member, who wishes to contest a decision of a trustee on who the benefit is to be paid to, it is appropriate to consider the circumstances in which the decision was made, including whether it was consistent with a nomination or binding direction made by the deceased member. If it was made in accordance with a binding direction, it will be necessary to consider whether the binding direction was validly given and was still valid at the time of death.
*Noel Davis is a Sydney barrister, the author of the text The Law of Superannuation in Australia (LexisNexis) and is a former member of the Superannuation Complaints Tribunal deciding superannuation disputes.