When a person passes away, their beneficiaries may inherit a death benefit through a superannuation fund. Often, and as is the case with the majority of super funds, this death benefit is paid to the member’s legal personal representative (LPR), whom, if the person has left a will, is the member’s executor. It is important to note that this LPR will hold what is known as a ‘fiduciary duty’.
From a Latin term meaning ‘to trust’, being a fiduciary or having a fiduciary duty means to place another person’s interests before your own. In relation to superannuation death benefits, a LPR must thereby put the interests of the beneficiaries before their personal interests and collect any death benefit in addition to the assets of the deceased’s estate for the beneficiaries.
Further, the LPR is under an obligation to ensure that their personal interests do not overlap with their duties. In other words, they must not promote or pursue circumstances in which a ‘conflict or real substantial possibility of conflict may occur’.
The novel case for highlighting this obligation and ‘conflict of interests’ in relation to death benefits arising from superannuation funds, was that of McIntosh v McIntosh . The deceased, James McIntosh, had membership to three superannuation funds; this lead to a combined death benefit of $453,748 from those funds. The LPR in the matter, who was the deceased’s mother, applied to each of the funds for the death benefit to be personally paid to her. However, while the superfunds were obliging, his mother’s former husband insisted the death benefits should have been paid to the estate. On hearing the matter, a court concluded that there was a clear conflict between her fiduciary duty to beneficiaries of the estate and her personal interest to have the monies paid to her personally as opposed to the estate. She was required to transfer the death benefits she had taken, to the estate; the notable take-away here being that a LPR must not have any conflict between their fiduciary duties and their personal interests.
There are two solutions to the challenge of a LPR benefitting from the death benefit.
Authorisation involves creating an authorising statement in a Will. It allows the death benefit to be paid to the person owing a fiduciary duty without incurring the conflict of interest. This statement should therefore outline that the executor may apply for or receive any death benefit payable as a result of the testator’s death, as authorised by the testator.
The second solution relates to revoking or renouncing execution of the estate by the executor. If a person discloses their conflict between fiduciary duty and personal interests, they may revoke their role as executor of the estate and thereby their responsibility to act as a fiduciary.
If you require further assistance in relation to this topic, you are welcome to contact our team of experienced taxation and commercial lawyers by clicking here to submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange a teleconference or appointment.