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Are public offer funds deficient on BDBNs?
A Sydney law firm has suggested that people should set up a self-managed superannuation fund (SMSF) if their public offer Australian Prudential Regulation Authority (APRA)-regulated fund does not provide the ability to make a binding death benefit nomination (BDBN).
Townsends Business and Corporate Lawyers special counsel, Brian Hor has cited a recent South Australian Supreme Court case as a cautionary tale around the importance of making BDBNs which could give rise to the need to establish an SMSF.
The case, Brine v Carter [2015] SASC 205, involved a deceased member of a public offer appointing his three adult sons and his de facto spouse as the executors of his Will.
He had two accounts with the super fund and, before he died, he wrote to the fund trustee to nominate his spouse to be the beneficiary of his indexed pension account, whilst the beneficiary of his other account was to be his estate because he had provided for his sons under his Will.
However, Hor pointed out that these communications from the deceased member did not represent binding nominations and after he died, his de facto spouse initially contacted the super fund and sought to have both of the deceased's super accounts paid solely to her as the dependant spouse.
He said that she then misrepresented to her co-executors (the three sons) that they and the estate were not eligible to receive any of the super so that she had to receive it all. Subsequently the sons found out from the super fund that in fact they and/or the estate could be considered for the exercise of discretion of the trustee to receive a death benefit payment from the fund (although the trustee did warn them that the trustee's practice was to invariably exercise its discretion in favour of a dependant rather than the estate, even if the deceased had made a non-binding nomination in favour of the estate).
Once the three sons discovered the spouse's misrepresentation of the situation, they lodged a claim to the fund trustee that it should exercise its discretion in favour of the estate. However, as they were previously warned, the trustee ended up exercising its discretion in favour of the dependant spouse as to 100 per cent of the death benefits.
Hor said that when the matter came to the Court, it was held that, notwithstanding the misrepresentations by the spouse and breach of her fiduciary duties as an executor up to the point in time when the three sons discovered her deceit, thereafter the actions of the sons in making a claim on behalf of the estate (without the spouse's involvement) effectively meant that they had accepted that she was not acting as an executor in the matter so that she was therefore entitled to pursue her claim for payment in her own personal capacity and not as a co-executor. Since she was no longer acting as an executor, she was therefore not in breach of her duties as such, and therefore was entitled to receive the payment herself without having to account to the estate for it.
"Ironically, if the three sons did not make a separate competing claim (which effectively operated as a consent to the spouse claiming in her own right), the spouse would have been held to be in breach of her duties as an executor and have to pay the money to the estate! As a result, notwithstanding her dishonest conduct, she won the case."
Hor said the outcome suggested that people should consider that if their public offer super fund did not allow them to make a BDBN, they should consider establishing a new SMSF that does allow the making of a non-lapsing BDBN, and then rollover your super accounts into the new fund so you can make the desired BDBN.
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