Fulfilling the role of executor for death benefit claims

Can the choice of executor affect who can claim death benefits? Does an executor have an obligation to claim the benefits for the estate?

If you are a client’s trusted adviser and you are asked to act as executor for your client, should you take on the role? While the request can be seen as an honour and validation of the trust placed in you, is it a good idea? What sort of considerations should the adviser take into account before accepting the role?

When will an advisor be asked to act?

Sometimes it is the case that a client does not have any other person or is not comfortable asking another person to act as executor of their estate.

For others, it is a question of wanting an independent and unbiased voice to contribute to the administration of the estate, to have a say in their SMSF or the ongoing operation of trusts (particularly where there are blended families or high risks of dispute among the family).

Increasingly, there are other reasons for seeking out the use of one or more independent executors or trustees. These include:

(a) Where a trust is being established for a beneficiary with a disability who is reliant on government benefits, to try to increase the chance of the trust not being attributed to the disabled beneficiary for Centrelink purposes. That issue is beyond the scope of this article however the decision of Secretary, Department of Education Employment and Workplace Relations v Elliott [2009] FCAFC 37 is an example of where the attribution rules were held not to apply to a trust set up under a will that was operated by independent trustees; and

(b) Where the will-maker wishes for there to be certainty that the intended recipient of their superannuation death benefits can apply for benefits without the risk of having an accusation of conflict of interest or a potential claim for an accounting of the benefits to the estate.

For these reasons or many others, you might be asked to act as the client’s executor.

The issue with superannuation – Brine v Carter

An executor and a trustee (including a trustee of a superannuation fund) have common law duties imposed upon them by virtue of the fiduciary nature of their role. These duties include a duty upon the fiduciary not to place himself or herself in a position involving a “real, sensible possibility of conflict” between their personal interests and their fiduciary duties.

This means that fiduciaries will breach their duties if they enter into transactions in which they have a personal interest, or which may potentially conflict with the interests of those whom they are bound to protect. This duty can be expressly overridden by the terms of the relevant instrument (ie, deed or will) or by implication.

It has long been debated how these roles work in the context of superannuation death benefits particularly in the case of SMSFs. Section 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) allows, at least at a compliance level, the legal personal representative (including an executor or administrator) to assume the trustee role (or director of the trustee company). What is the fiduciary obligation if the executor or administrator has a potential conflict of interest?

Some recent decisions of the court have provided an insight as to how they look at this question of conflict of interest in relation to superannuation death benefits.

In the decision of McIntosh v McIntosh [2014] QSC 099, the deceased died interstate and his mother obtained letters of administration. Subsequently, the mother applied for the superannuation benefits to be paid to her personally on the basis that she and her son were in an interdependency relationship, without initially disclosing this to the other beneficiary of the estate. There was no binding nomination (although there was a non-binding nomination in favour of the mother). The Queensland Supreme Court found that part of the duty of the administrator in those circumstances was to claim the superannuation death benefits for the estate, and that Mrs McIntosh was liable to account to the estate to that extent.

In McIntosh, the court considered the fact that the will-maker had not expressly chosen his mother to be the administrator and could not be said to have authorised the ability to act in a conflict. A distinction was drawn with the role of executor because it was said that the choice by the will-maker to appoint someone with the knowledge that they were in a conflicted position in being able to claim superannuation death benefits directly, was implied authority enabling them to do so.

The more recent decision of Brine v Carter [2015] SASC 205, however, was the case of an executor who sought to claim superannuation death benefits directly. In that case the court found:

(a) An executor has a duty to collect assets of the estate;

(b) An executor is in a fiduciary position where they must not, without prior authorisation, use knowledge or an opportunity for their own personal interest, or pursue a personal benefit where it conflicts with their duty;

(c) A breach of these obligations results in an obligation to account to the person to whom the obligation is owed for benefits which have been received by reason of the use of knowledge or opportunity, and arises irrespective of an absence of bad faith;

(d) A fiduciary is not liable if they are authorised to act either expressly or by implication from the circumstances of his or her appointment or by the informed consent of the beneficiaries; and

(e) There was no distinction between an administrator and an executor in this regard.

The court found that the usual implication of consent to act in a conflicted position afforded to an executor does not apply to superannuation claims because those positions (where the implication can often be found) needed to be contrasted with “a sophisticated superannuation policy governed by a complex trust deed in which the trustee has discretionary functions”.

Of course, this question is irrelevant if the estate planning for the client has been addressed such that there is no exercise of discretion by the superannuation fund trustee (for example, via valid binding death benefit nomination, or valid reversionary pension).

There are, however, cases where the binding arrangements are either not possible (because of the rules of the external fund), where they have lapsed, or where flexibility is desired even within an SMSF so that an appropriate decision can be made at the time.

As we have also seen in other cases such as Donovan v Donovan [2009] QSC 026 and Munro v Munro [2015] QSC 061, there can be a risk that what is thought to be binding is found not to be.

Considerations

Professionals who are considering whether or not to take up the role of executor should consider the four ‘Rs'.

Role

(a) Once you accept the role of executor you are not able to simply resign prior to the conclusion of the estate administration without the leave of the court. Even if you have not obtained a grant or probate, if you are seen to have “intermeddled” in the estate, you may be required to continue to act or at least be held responsible for the actions taken;

(b) An executor is responsible for many aspects of the estate administration that are not strictly financial. Are you prepared to take responsibility for:

(i) arranging the funeral?
(ii) cleaning out any residence and dealing with chattels and personal effects? 
(iii) dealing with the beneficiaries?
(iv) addressing any dispute in the estate (including litigating any dispute)?

(c) Clarity around the role should be sought. For example:

(i) if there is an SMSF, the executor will usually need to play a role even if not in the determination of who receives the benefits, then at least in the mechanics of implementing the commencement of payment;
(ii) existing family trusts. It is common for controlling roles in a family trust to default to the legal personal representative; and
(iii) ongoing trusts established under the will – particularly in the case of life interests and other forms of protective trusts, these roles can last for decades;

(d) In some cases, the role can pass to your executor. Succession planning of the role should be considered at the outset.

Risk

(a) An executor or trustee carries personal liability for their actions and for the debts of the relevant estate or trust (at least to the level of the assets of the estate or trust);

(b) If the role is taken out in a professional capacity, the terms of the relevant professional indemnity insurance should be checked to confirm whether or not there is any cover;

(c) Other actions can be taken to reduce risk such as the placement of creditors notices, and applying to the Court for directions, but they mitigate risk and do not remove it;

(d) Other sensible questions to ask include:

(i) do I know the client and their family well?
(ii) am I familiar with all of their structures?
(iii) should I only act as a co-executor with someone else?

Resources

(a) In light of the role, do you have the resources to meet the demands? A typical estate administration can take at least 12 months and often longer;

(b) This can include personal time to be devoted to the role, as well as the ability to call upon appropriate providers of other expertise particularly in the non-financial areas of responsibility (eg, funeral).

Remuneration

(a) In some cases, including acting as trustee of a SMSF and as trustee of a special disability trust, remuneration is prohibited;

(b) In all other cases, the common law is that an executor or trustee is expected to act personally and for no reward (unless specifically authorised). This extends to a prohibition on a firm of which the executor or trustee is a profit sharing partner from acting;

(c) If the relevant deed or will does not specifically authorise remuneration for professional services, it is not able to be charged;

(d) Commission is a separate question to professional remuneration. It is the payment for actually doing the role of executor or trustee. Unless the document sets out the basis for payment of commission, the ability to claim it will require consent of the beneficiaries or court approval;

(e) It is imperative for records of all attendances to be kept to support any commission claim, which is usually delayed until the end of the administration of the estate.

Other alternatives

Given that you may be prohibited from resigning if you start to act, it is important to get advice early before accepting the role. Ideally, this would be at the time the client is considering naming you in the document.

If, on balance you decide to decline the role, then what other options are there for clients? In the absence of other professional advisors willing to take the role, then Trustee Companies are usually able to act.

Of course, where the driving reason behind the appointment of an independent trustee is to address the superannuation question and conflict of interest, then other alternatives can include:

(a) Ensuring the will has an appropriate clause that expressly permits the party acting as executor to also claim super directly. If there is an SMSF involved, a review of the deed in particular in relation to question of conflict of interest should be considered; or

(b) In the first instance a review of the binding documents should be considered.

Conclusion

The role of executor or trustee can be a significant burden in terms of time, and risk, and sometimes without significant reward. Any decision to accept such a role should only be made after appropriate and specific advice.

In the meantime, advisors should consider whether their client’s wills or other estate planning documents like binding nominations or reversionary pensions need review to address the potential issue raised in Brine v Carter.

By Jennifer Dixon, estate planning principal, Moores