Superannuation benefits – a trap for executors

Some years ago, I was involved in some litigation that arose when a man died leaving superannuation entitlements (but without nominating an intended recipient) and had nominated his partner as the executor of his Will. She personally wrote to the superannuation fund requesting the superannuation benefit be released to her on the basis that she was the deceased’s “spouse”; but she also applied for probate of the Will, which was granted. She was one, but not the only, beneficiary under the Will.

As soon as she became the Court appointed executor, she was in a position of conflict of interest. That was because she had asked the superfund to pay benefits to her personally but, as executor, she owed a duty to all beneficiaries to bring into the estate as much money as possible for their mutual benefit. She could not discharge that duty whilst simultaneously trying to obtain the superannuation benefit for herself.

A similar situation has recently been dealt with in the Western Australia Supreme Court. A Mr Burgess died at a relatively young age but, because of the nature of his work, he was a member of 4 different superannuation funds. He had made relatively small contributions but most of the funds had substantial life insurance policies associated with them. He left a widow and two young children. The widow applied to all of the funds for the insurance policy benefits to be paid to her. One fund promptly did so. The widow then applied to become the administrator of the deceased estate (Mr Burgess did not leave a Will) and she was appointed as administrator. After her appointment, a second fund paid an insurance benefit directly to her (and not to the estate).

The language of the court’s judgment infers the widow received advice that there was some uncertainty as to her entitlement to receive at least that second payment; and it was the widow herself who brought the proceedings, effectively seeking judicial ‘advice’ as to what she should do. Ultimately, the court concluded she was entitled to keep the first payment because it had been paid before the widow became the administrator of the estate. However, she was not entitled to keep the second payment because it was received after she became the administrator and her duty at that point was to all people entitled to share in the estate under the rules of intestacy – which included her infant children.

Because the widow had an entitlement to some of the estate anyway (the law in WA is that a widow receives the first $50,000.00 in a deceased estate and then an equal share of the residue) the court calculated what that entitlement was in monetary terms; worked out the extent to which the widow had overpaid herself by receiving the proceeds of the second life policy and then ordered her to repay the balance to the estate (although it must be said the means by which the court reached that result was quite complicated because the widow had used some of the money to buy a property and had borrowed money secured by mortgage, before the case was heard).

In closing remarks, the judge noted that:

“In an age of increasing moral ambivalence in western society, the rigor of a court of equity must endure. It will not be shaken as regards what is a sacred obligation of total and uncompromised fidelity required of a trustee. Here, that required the administrator not just to disclose the existence of the (rival) estate interest when claiming the superannuation monies in her own right… it required more. It required her to apply as administrator of the estate for it to receive the funds in any exercise of the fund trustee’s discretion”.

 The decision is a compelling illustration of the obligations on all trustees (and executors and administrators of deceased estates are all trustees) not only to perform their trust obligations; but not to put themselves in conflict with those obligations.

The judge commented that had Mr Burgess either made a legal Will, or made an effective binding death nomination (or both) prior to his death, his widow would not have been placed in the awkward situation that arose. To that extent, the case is a reminder that putting one’s affairs in order before death, can save a lot of complications for loved ones after death: Denise Burgess as Administrator of the Estate of Brian Michael Burgess v Burgess [2018] WASC 279.