The courts are carefully examining those who receive benefits from superannuation while acting as executor, with recent cases highlighting the need for provisions allowing a person to claim benefits despite being in a position of conflict.
Speaking to SMSF Adviser, Cooper Grace Ward commercial workshop leader Scott Hay-Bartlem said the case Brine v Carter demonstrates the importance of structuring client arrangements so that executors or administrators are not unintentionally prevented from claiming superannuation.
This recent case, Mr Hay-Bartlem said, is similar to the earlier case of McIntosh v McIntosh, which examined the conflict of an administrator in claiming superannuation benefits for herself, as opposed to requesting the proceeds to be paid to the estate.
Brine v Carter considered whether the same conflict arises with an executor, he said.
In this particular case Professor Brine died with two superannuation accounts and had appointed his three children and de facto partner Ms Carter as his executors, according to Cooper Grace Ward Lawyers.
“Ms Carter applied for the death benefit to be paid to her. The other executors sought an order requiring, among other things, that Ms Carter account to the estate for the superannuation benefit she received, due to the conflict of interest caused by her being an executor of Professor Brine’s estate,” explained Mr Hay-Bartlem.
Situations like in Brine v Carter, Mr Hay-Bartlem said, tend to occur where someone is the spouse and they’re acting as executor but they also want to receive the super.
“A few years ago we wouldn’t have been concerned about them doing that, but because of the McIntosh v McIntosh decision, the courts are now really ramping up [their] scrutiny of people who are acting in both roles; the executor who has to get the money for the estate, and the person wanting to get the super [benefit] for themselves.”
While Ms Carter was lucky in this particular case, with Justice Blue ruling she was not “liable to account to the estate for the benefit”, Mr Hay-Bartlem said this case could have been avoided altogether with careful planning.
“There are a couple of things SMSF practitioners need to think about. One is: do we need to put a conflict clause in the will?” he said.
Practitioners need to ensure the person claiming the super is absolved of the conflict, he said, allowing them to claim the super despite the conflict.
The person making the will, he stressed, also needs to understand the conflict.
“One interesting point about Brine v Carter is the judge actually said that the fellow who died probably couldn’t have understood the conflict, it was all too messy and too complicated,” he said.
Another option, he said, is to consider who the executor is, or who it should be, and if it might be best not to have the person who is receiving the super as an executor.
However, this may not always be the right answer, he said, because the spouse, for example, might be the right executor, but removing them as executor can remove the conflict question.
“The third [option] is you do a binding nomination or you do a reversion for the pension so the super is forced to that person,” he said.
“We’re seeing more cases where this is becoming a point in making death benefit decisions, so it is really important for advisers to start thinking about these sorts of things.”
One of the other interesting points about the Brine v Carter case, as noted by Brian Hor, special counsel and estate planning at Townsends Business & Corporate Lawyers, was that if the three sons had not made a separate competing claim, the spouse, Ms Carter, would have been held in breach of her duties as an executor and would have had to pay the money to the estate.
When the matter came to court, Mr Hor said, 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 and 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,” said Mr Hor.
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