The facts
The father was survived by three adult children, the mother having predeceased. The father could have made a binding death benefit nomination as the provisions of the superannuation fund expressly provided that facility. However, for reasons not explained, the father had not done so. If the father had done so, this article would end about here.
In fact, the father did not even make a non-binding death benefit nomination. On the father’s death, the trustee of the superannuation fund was required to allocate the death benefit to amongst the dependants of the father or to his estate (or a combination of dependants and the estate). It seems that the only dependants were the three adult children.
Had the trustee distributed the substantial benefit to the estate, the daughter (as the principal beneficiary of the estate) would have received the death benefit. It seems neither brother was a beneficiary of the estate.
The trustee had adopted a general rule as to the manner in which death benefits are to be allocated when there is no binding death benefit nomination: the general rule being that the trustee does not allocate to the estate unless there are no dependants.
The trustee, in accordance with the general rule, decided to pay each of the adult children a third of the death benefit payable from the fund. However, one of the three children, his daughter, who was also one of the executors of her father’s estate, sought to challenge this decision and she challenged the decision in her capacity as a joint executor of the estate of the father.
Challenge before the Superannuation Complaints Tribunal
The daughter was dissatisfied with the trustee’s decision. As the super fund was a public offer fund, the daughter could refer the trustee’s decision to the Superannuation Complaints Tribunal.
The daughter’s challenge was based upon two points. First was that the trustee had failed to take into account a previous family property arrangement by which her two brothers had benefited but she did not. It should be inferred that the father therefore intended that the daughter should receive the super benefit.
The second was that the trustee had “fettered” the exercise of their discretion by adopting the general rule of not paying the benefit to the estate if there were dependants and so the exercise of the discretion was defective.
In relation to the first point the Tribunal noted that the daughter did not obtain any advantage from the property arrangement which occurred about 16 years before the father had died and also noted that the arrangement did not provide that the daughter would (in lieu) obtain the super benefits. In fact, the father had in the family property arrangement expressed the wish that neither of the brothers should have any further rights against him or his estate.
From this the daughter argued that while the family property settlement did not deal with the father’s superannuation it was implicit in the agreement that the two brothers would derive no benefit from the father’s super.
The trustee was aware of this point but noted that it was not the trustee’s role to resolve any perceived or real issues in a deceased’s member’s estate.
The Tribunal held that it was not unreasonable for the trustee to follow its practice and not pay the benefit to the estate if there were dependants. Further, the Tribunal held that there was no evidence to support a greater claim on the benefit of any of the adult children of the deceased.
Consequently, on the first point the Tribunal held that the decision to pay the death benefit equally to all three children was fair and reasonable in its operation in relation to complainants.
In relation to the second point, the Tribunal noted that the general rule in fact did not operate as a fetter but was used by the trustee as a guide, the application of which was subject to the particular circumstances of the case. Consequently the trustee had not fettered their discretion.
Given the finding that the discretion was in fact exercised by the trustee (ie was not subject to a fetter) and the decision was fair and reasonable in its operation in relation to the complainants, the Tribunal was bound to affirm the decision of the trustee.
Appeal to the Federal Court
The daughter (as joint executor) then appealed to the Federal Court.
While reference of the trustee’s decision to the Tribunal was simply on the basis that the daughter was dissatisfied with the decision, an appeal to the Federal Court is permitted only on a question of law and the appeal is restricted to the questions of law which have been identified.
In the end, the Federal Court held – like the Superannuation Complaints Tribunal – that the decision reached by the trustee was fair and reasonable.
The questions of law raised by the daughter were two: first related to the “fetter” argument while the second was that the Tribunal failed to give adequate reasons for its decision.
As to the fetter question, the daughter expressed the issue that the Tribunal had adopted as a legal principle that the trustee of a super fund must in general pay to dependants in lieu of estate where there is no binding nomination. The Court held the Tribunal did not in fact hold that such a legal rule applied.
As to second question, the Court held that the Tribunal had in fact discharged its statutory obligation to give adequate reasons. The Tribunal posed the correct legal questions; it made findings of material facts; and proceeded to make the evaluative judgment required and explained its reasons for its determination.
Consequently, the appeal failed as neither ground was made out.
But what are the lessons: in particular, the alleged 5 lessons?
First, this case would never have arisen had the father made a binding death benefit nomination.
The father had a relatively simple and inexpensive means by which to achieve his goal of his super only benefiting his daughter (assuming that was his intention) – this was simply making a binding death benefit nomination or, if the trust deed of the public offer fund permitted, a non-lapsing death benefit nomination nominating his estate. This nomination (if correctly made) would have been very difficult to challenge.
Second, challenging a trustee’s decision on its merits is difficult.
A trustee’s decision cannot be challenged before the Complaints Tribunal merely on the basis that it was the best decision or that another person would have made a different decision.
Third, simply arguing that the trustee should have made a different decision will not be sufficient before the Complaints Tribunal.
While the trustee could have decided to pay the entire benefit to the daughter rather than to all three children or to the estate, it did not make that decision. The trustee’s decision is not challengeable before the Tribunal simply because another decision could have been made.
Fourth, establishing a “question of law” is not easy. Merely asserting a better decision could have been made by the trustee is not a question of law.
In this particular case, the daughter had the benefit of the doubt as to whether the question of law threshold had been satisfied.
Fifth – and finally – the central issue for the Tribunal is whether the trustee’s decision is “fair and reasonable” in the circumstances. The Tribunal is not concerned with reviewing the process by which the trustee reached its decision.
Consequently, the Tribunal function is not to find defects in the reasoning process but to consider the decision reached and to form a view as to whether the decision satisfies the requirement of being “fair and reasonable”.
The citation?
Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited [2015] FCA 612
Michael Hallinan, special counsel superannuation, Townsends Business & Corporate Lawyers
Rob, the taxpayer would have covered the cost as putting in a complaint to the Superannuation Complaints Tribunal is completely free. I really do think David L has hit the nail on the head when he says it’s all set up to keep the fraternity employed. In many cases people who aren’t financially inter/dependent can complain to the SCT and hold the financially inter/dependent intended non-binding beneficiary to ransom via a conciliation process or make that intended beneficiary wait a very long time for the review/outcome. Needs fixing, but noone is interested in changing it. Of course.
Astonishing that someone who was in the BRW 200 (David Mandie) did not have advisers (financial, legal) who would have preempted this occurrence and recommended a simple BDBN or a non-lapsing BDBN if the product offered that would have protected against this event.
A quick search through Google reveals significant family conflict with grandchildren also involved in some legal action against the family trust.
At no point through the article does it state that the brothers were party of any proceeding.
If they received a settlement and severance from their father many years prior and someone knocks on their door and hands them a cheque for a 33% superannuation payout on their fathers death, who wouldn’t take it?
I don’t think greed has anything to do with it, except for perhaps the daughter’s position.
Let’s not forget that they never chased the money, the Daughter was the one suing to protect it. If the decision had have gone in favour of the daughter, perhaps we would’ve seen whether the brother’s would have sued for their share – but I think not.
Josh, i’ve just been doing some work for clients who had a non-binding nom in place to the husband. The deceased had never had children of her own, the husband was named as sole beneficiary of the Will, with the step-children to inherit if the husband was to predecease. Even in that situation the trustee of the public offer fund delayed payment while we had to run around getting declarations from her step-children to say that they disclaimed any rights to payment and that the benefit should be paid to their father.
So i’m guessing that the brother’s could have advised the trustee that they didnt want to benefit from the super payout but choose not to. So greed seems to describe it pretty accurately i would think. I’m sure your position would be different if you were married to the sister….
The “property arrangement” had occurred 16 years before the father died.
Who is to say that that was still his desire 16 years later? Also, it was only “inferred” that this was his wish. Inferred by who – the daughter perhaps?
Thanks Eric, I understand the distinction.
Just wanted to make the point that time and again we see the express wishes of deceased parties ignored on the basis of legal technicalities typically exploited by relatives motivated only by greed.
One wonders whether the legal system is truly interested in equitable outcomes, or whether complexities are deliberately built in to keep the fraternity employed.
Failing to honour the wishes of a dying man simply because he didn’t have the right piece of paper on file hardly seems just, but then I’m not a lawyer……
It’s just like the Qld case where the lawyer completing his own BDBN instructed the payment to be made to ‘the trustee’ of his estate. There is no such thing, even though most people would recognise that he was referring to his LPR and that the super death benefit was to go to his estate and be dealt with via his Will. It has been suggested that a very strict interpretation was given as the judiciary in general dont like their powers being taken by law making politicians….i guess that keeping the fraternity employed follows on from such complexities….
David has mentioned the arrangement, where each of the brothers should have no claim against the deceased or his estate. The important fact that many outside the industry do not know is that the the super is not a part of his estate, unless the trustees make the payment to the estate. The agreement has no impact on the trustees whatsoever.
I suggest this is an area where a financial advisor may incur an issue in the future, should they fail to adequately advise a fund member of the need for death benefit nominations.
Quoting – “In fact, the father had in the family property arrangement expressed the wish that neither of the brothers should have any further rights against him or his estate.”
If this was a documented wish, then surely it has to be taken into account in making the decision. Sounds like a cop-out by all concerned.
Further, surely the brothers would have been aware of this wish and therefore known they should not have received any further benefits. I guess greed wins in the end!
Interesting article. Wondering who covered the cost of the daughters various appeals?