Binding death benefit nominations for superannuation funds ? problems when not considered

David Mandie died in August 2011.  His wife Minnie predeceased him and Mr Mandie was survived by his three children, Stephen, Ian and Evelyn.  Mr Mandie was a member of the BRW Rich 200 list and his wealth in May 2011 was estimated at $289 million.  He was a pioneer of duty-free shopping and also held the number 1 ticket of Richmond football club.

The facts

For some years prior to the death of Mr Mandie, Stephen and Ian disagreed with their parents on the contributions Stephen and Ian allegedly made to the businesses operated by their parents.  In October 1995, a settlement was reached concerning questions of compensation to Stephen and Ian for their alleged contributions to the businesses and a settlement agreement was made in December 1995.

Part of the terms of the settlement agreement states that neither of Mr Mandie’s adult sons “have any further rights against [him] or [his wife] or their respective estates…”  The settlement agreement also dealt with Mr Mandie’s Will under which he left fixed sums to his grandchildren and the residue of his estate to his daughter Evelyn.

On 12 October 2012, Stephen and Ian filed a proceeding in the Supreme Court of Victoria seeking further provision from the residuary estate of their father which had a value of approximately $35 million.  During the proceedings an offer was made to Stephen and Ian for a payment of $1 million each plus their costs in full and final settlement of their claim.  That offer was rejected.  Just prior to the trial date set on 4 February 2015, Stephen and Ian sought leave to discontinue the proceeding which was granted on 10 March 2015 – see Re Mandie; Mandie v Danos [2015] VSC 55.  Stephen and Ian provided no reasons or explanation for seeking leave to discontinue the proceeding. 

On 23 June 2015, the Federal Court of Australia in Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited [2015] FCA 612 dismissed an appeal from a decision of the Superannuation Complaints Tribunal upholding the trustees determination to pay superannuation death benefits equally between Stephen, Ian and Evelyn.

The Trustee of the superannuation fund determined to pay superannuation death benefits equally between Stephen, Ian and Evelyn.  The executors of the Will of Mr Mandie, one of which was his daughter Evelyn, complained to the Superannuation Complaints Tribunal about the decision of the Trustee.  The executors sought unsuccessfully for the entitlement to be paid to them as legal personal representative and the Superannuation Complaints Tribunal upheld the decision of the Trustee to pay entitlements equally between Stephen, Ian and Evelyn. Mr Mandie had made a non-binding death benefit nomination which nominated his wife, however she predeceased Mr Mandie.  Mr Mandie did not make any other death benefit nomination even though the trust deed allowed members to make binding death benefit nominations.

The Executors argued that Mr Mandie’s wish to exclude Stephen and Ian from any interest in his or his wife’s estate was reflected in the settlement agreement.  Whilst the Executors acknowledged the settlement agreement did not specifically deal with proceeds of superannuation, they argued the settlement agreement implied that Stephen and Ian should not receive any benefit from proceeds of superannuation.  If proceeds of superannuation were paid to the legal personal representative, they would then form part of Mr Mandie’s estate and be distributed in accordance with his Will.

The Executors then appealed the determination of the Superannuation Complaints Tribunal to the Federal Court of Australia on the following questions of law from the decision of the Tribunal:

• “Is a superannuation trustee in general not to pay to the legal personal representative of a deceased member unless there are no dependants or a binding death benefit nomination in favour of the legal personal representative?
• Did the Tribunal give adequate reasons for its decision?”

The Federal Court of Australia dismissed the appeal finding:

• “At no point did the Tribunal rule, as a matter of law, that, in general, a trustee should not make payments out of a superannuation fund to the legal personal representative of a deceased member unless there are no dependants or the deceased has made a binding nomination requiring payment to the legal personal representative; and
• The Tribunal made findings of fact and proceeded to make the evaluative judgment which the Superannuation (Resolution of Complaints) Act 1993 (Cth) prescribed.  It explained its reasons for doing so.  It did not, therefore, fail in its statutory duty to provide reasons for its determination.”

Conclusion

The decision again highlights that superannuation is not an asset of an estate and the importance of ensuring binding death benefit nominations are signed to give effect to the wishes of clients so as to avoid costly legal proceedings.

The following is a passage from the deliberations of the Tribunal which should always be kept in mind:

“Firstly, superannuation is not an asset of the estate and a trustee is not bound to follow the directions of a will.  Even if superannuation is specifically mentioned in a will, it does not make it an asset subject to the terms of the will.”

The decision of the Tribunal and the Federal Court are also interesting from the point of view of understanding the general procedure adopted by Trustees of superannuation funds in their determination of who will receive superannuation proceeds when there is no binding death benefit nomination.

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.

Author: Eileen Meehan, Consultant