Conflicts of Interest

When an Estate Administrator makes a personal claim on a Super Fund – McIntosh v McIntosh

Background Facts

1. McIntosh v McIntosh1 was a dispute about whether a personal representative of an estate was under a duty to account to the estate for death benefits received personally from Super Fund Trustees.

2. James Joseph Macintosh (Jamie) died on 14 July 2013 and did not leave a will.

3. His mother Elizabeth McIntosh (Elizabeth) became the administrator of the estate. She is the Applicant in the court proceedings.

4. Jamie died without a spouse. The rules of intestacy meant that his estate goes to his parents.

5. John McIntosh (John) is the father of Jamie. John is the Respondent.

6. Elizabeth and John were divorced and there was a high level of conflict between them.

7. In correspondence, Elizabeth had stated:

a. that she would administer the estate in accordance with the “rules of the intestacy such that the estate is distributed between Jamie’s two parents in equal shares”.

b. Any superannuation held by Jamie will be dealt with “by the trustees of the relevant funds having regard to any binding nominations, any non-binding nominations, lapsed nominations, the relationship between the deceased and his parents and the intestacy rules”.

8. Elizabeth was aware of the beneficial interest that John had in Jamie’s estate.

9. There was about $80,000 in Jamie’s estate.

10. However, Jamie had three superannuation funds:

a. $234,282.35 from Host plus;

b. $184,119.94 from Hester; and

c. $35,275.40 from Intrust super.

11. However Elizabeth applied for and received the superannuation benefits personally. She believed the death benefits did not form part of the estate.

12. Elizabeth filed an application for advice pursuant to section 6 of the Succession Act and section 96 of the Trusts Act for directions as to whether she was required to pay the superannuation benefits to the estate. Elizabeth didn’t want to pay the superannuation benefits to the estate. This would mean that she would have to share it with her former husband).

History of Family Conflict

13. Elizabeth and John married on 19 October 1968. There were three children of the marriage including Jamie who was born on April 1, 1972.

14. They divorced on 23 February 1979 and their relationship ever since has been acrimonious.

15. Elizabeth says:

a. James was closer to Elizabeth;

b. James lived with Elizabeth at the time of his death and for more than 30 years of his 40 years;

c. they shared household bills and James depended on Elizabeth because he was bipolar years, and had a hip disease which left James’ leg shorter than his right leg; and

d. that there was a relationship of interdependency.

16. John says:

a. John had a warm continuing relationship with James; and

b. he accepted that James lived with his mother.

The Argument

17. The argument was whether the super monies should have been paid into the estate to be divided equally between Elizabeth and John.

18. Elizabeth’s position was that the superannuation did not form part of the estate and the intestacy rules do not apply to the superannuation proceeds.

19. Elizabeth was pressed for information about the superannuation accountsand what efforts were being made to realise those accounts.

20. Elizabeth responded that there was no obligation on her as the personal representative to make an application to have the superannuation interests held by Jamie paid to the estate.

Discretion of Superannuation Trustee

21. There was some contention between the parties as to whether a trustee of a superannuation fund usually exercised their discretion in favour of the estate.

22. John’s position was that: “in the usual course of events, the trustee will make enquiry as to those persons who are eligible to receive benefit under the terms of the relevant legislation and trust deed, and will place particular emphasis on the exercise of their discretion to those who weredependent upon the contributor and any nominated beneficiaries under non-binding nominations….” and that “such trustees make their own enquiries in that respect including soliciting submissions where they deem appropriate”.

23. Elizabeth’s position was that;

a. she was the nominated beneficiary of each of the funds;

b. that it was a non-binding nomination in each case;

c. she provided Johns contact details when requested by the trustee.

24. Elizabeth swore that the trustee of each fund determined to pay the balance to her on the basis that Jamie and Elizabeth had an interdependency relationship at the time of his death and the balance of his funds were paid to her on that basis which meant she did not have to pay tax on the interest each trustee paid to her.

25. Other things Elizabeth said to the Trustee:

26. Elizabeth also stated to the various trustees that:

a. since December 2012 the whereabouts of John or his daughter Stacey (James’s sister) was unknown to her and that the only contact was through his solicitor;

b. she would share the proceeds equally between the father Brother Sister and herself;

c. the father wanted to put James into bankruptcy after major surgery.

Decision

27. There is a difference between the duty of an administrator and the duty of an executor. An administrator is appointed by the court and an executor is appointed by the testator.

28. Usually the administrator will be the person who has the greater interest as beneficiary of the estate.

29. Here there was a clear conflict of duty and interest contrary to Elizabeth’s fiduciary duties as administrator.

30. When making application to the superannuation funds, Elizabeth was preferring her own interests.

31. She resolved the conflict of interest in her favour and in doing so also breached the statutory duty under section 52 (1) (a) of the Succession Act 1981.2

32. An administrator of an intestate estate has a duty to apply for payment of superannuation funds to the estate. The administrator has no proprietary right to the funds but has standing to compel the trustees of the fund to exercise their discretion to pay out the funds.

33. The superannuation fund’s duty on the death of a member is found in regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994 (SIS).3 This regulation places a limitation on the cashing of benefits in favour of persons other than members or their legal personal representatives.

34. The trustee of the super fund may make the payment to either or both of the legal personal representative or the members and dependents, but the personal representative “must be under a duty to call on the trustee to exercise”. The discretion resides in the trustee but is subject to a valid binding nomination. There was no binding nomination in this case so the trustees of the fund were obliged to comply with regulations 6.22 and pay the benefits to the legal personal representative.

35. In the result Elizabeth was required to account to the estate for the superannuation benefits.

What this means for Trustees of Super Funds

36. Trustees need to look at and comply with SIS regulation 6.22. It will usually mean that the benefits must be paid to the legal personal representative and no other.

37. Trustees should make enquiries as to the existence of any binding nomination.

What this means for Personal Representatives

38. There is a fiduciary duty to call on the trustee of a super fund to exercise its discretion in favour of the estate and not for their own personal purposes. The general rule is that “no one who has fiduciary duties is allowed to enter into engagements in which the fiduciary has or may have a personal interest conflicting with the interest of those whom the fiduciary is bound to protect”.

39. Suggested remedies:

a. Ensure that there are complying and valid binding nominations which make it clear where the death benefits are to be paid; and

b. A properly drafted will may have assisted in avoiding the disputes by clarifying the obligations of the executor. In this case there was no will and there were competing claims by disputing family members, in this case Mom and Dad.

For more information please contact Evan Sarinas of Sarinas Legal. This release is not intended as legal advice and all liability is disclaimed for reliance on it.

1 [2014] QSC 99

2 52 The duties of personal representatives (1) The personal representative of a deceased person shall be under a duty to— (a) collect and get in the real and personal estate of the deceased and administer it according to law; and (b) when required to do so by the court, exhibit on oath in the court a full inventory of the estate and when so required render an account of the administration of the estate to the court; and (c) when required to do so by the court, deliver up the grant of probate or letters of administration to the court; and (d) distribute the estate of the deceased, subject to the administration thereof, as soon as may be; and (e) pay interest upon any general legacy— (i) from the first anniversary of the death of the testator until payment of the legacy; or (ii) in the case of a legacy that is, pursuant to a provision of the will, payable at a future date—from that date until payment of the legacy; at the rate of 8% per annum or at such other rate as the court may either generally or in a specific case determine, unless any contrary intention respecting the payment of the interest appears by the will. (1A) Nothing in subsection (1) abrogates any rule or practice deriving from the principle of the executor’s year or any rule or practice under which a beneficiary is entitled to receive interest upon any legacy from the date of the testator’s death. (2) If the personal representative neglects to perform his or her duties as aforesaid the court may, upon the application of any person aggrieved by such neglect, make such order as it thinks fit including an order for damages and an order requiring the personal representative to pay interest on such sums of money as have been in the personal representative’s hands and the costs of the application.

3 SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 6.22 Limitation on cashing of benefits in regulated superannuation funds in favour of persons other than members or their legal personal representatives (1) Subject to subregulation (6) and regulations 6.22B, 7A.13, 7A.17 and 7A.18, a member’s benefits in a regulated superannuation fund must not be cashed in favour of a person other than the member or the member’s legal personal representative: (a) unless: (i) the member has died; and (ii) the conditions of subregulation (2) or (3) are satisfied; or (b) unless the conditions of subregulation (4) or (5) are satisfied. (2) The conditions of this subregulation are satisfied if the benefits are cashed in favour of either or both of the following: (a) the member’s legal personal representative; (b) one or more of the member’s dependants. (3) The conditions of this subregulation are satisfied if: (a) the trustee has not, after making reasonable enquiries, found either a legal personal representative, or a dependant, of the member; and (b) the person in whose favour benefits are cashed is an individual. (4) The conditions of this subregulation are satisfied if: (a) the superannuation provider has received a release authority in respect of the member under: (i) section 292 – 410 or 292 – 420 of the 1997 Tax Act; or (ii) section 96-10, 135-40 or 135-45 in Schedule 1 to the Taxation Administration Act 1953 ; and (b) the benefits are cashed in favour of the Commissioner of Taxation in accordance with the authority. (5) The conditions of this subregulation are satisfied if the member’s benefits are cashed in favour of the Commissioner of Taxation to pay an amount to the Commissioner of Taxation under the Superannuation (Unclaimed Money and Lost Members) Act 1999 . (6) This regulation does not apply if, under a law of the Commonwealth, a State or a Territory mentioned in the table, a court makes a forfeiture order (however called) forfeiting part or all of the member’s benefits in the fund to the Commonwealth, a State or a Territory.

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