Superannuation benefits generally do not form part of an estate in the event of your death. As such, it is important that you plan appropriately in advance so that family disputes can be avoided.
Superannuation benefits are often a significant asset that attracts considerable attention from family members upon the death of a superannuation fund member.
The death benefit is therefore a very important part of your assets but often attention is not paid to designate who should receive the benefit. This results in the superannuation trustee being left in a position to decide who should ultimately receive the benefit which understandably often results in a family dispute that could have been avoided with some foresight.
Further considerations must be given to superannuation in the event of a divorce. Under these circumstances superannuation may be split between the spouses. A division of superannuation can be done voluntarily or by order of the court.
Further disputes may arise in respect to disability benefits. Generally these disputes arise in respect to the construction of the policy and the various applicable definitions. If a disability benefit is to be paid into a superannuation fund the conditions of release from the fund should be reviewed so as to ensure you may receive said funds immediately.
Death Benefit Disputes
Disputes about death benefits paid into superannuation funds are extremely common. Many funds provide for a substantial life insurance benefit to be paid into the superannuation fund upon death of a member. These benefits are often added to the accumulated benefits already in existence in the fund.
Death benefits are usually not paid in accordance with the will of the deceased. Instead, death benefits are paid according to either the discretion of the trustee in accordance with the trust deed, or alternatively in accordance with a binding nomination from the member. The trust deed usually sets out a description of the class of people to whom the benefit can be paid. Typically this is limited to immediate family members of the deceased or those wholly or partially dependent upon the deceased.
It is now possible for a member to nominate the recipient of a death benefit in such a way as to make the nomination binding and avoid the trustee making a decision and possibly instigate a dispute.
There are many reasons that disputes can arise between possible beneficiaries. For example, beneficiaries may raise a dispute in respect to whether a particular person is wholly or partially dependent on the deceased. Similarly, disputes may be raised in respect to whether a particular person satisfies the description a certain class of beneficiaries, or alternatively, whether a trustee should exercise its discretion to determine how the benefit should be divided between the claimants. These problems are often exasperated when the deceased was involved in more than one family during life.
Factors often taken into account by the trustee include:
- Whether the deceased nominated a preferred beneficiary and if so whether any event has occurred since the nomination which might have invalidated the nomination;
- The comparative financial needs of the claimants;
- Any amount to which a claimant is entitled from the estate of the deceased;
- The extent of the financial dependency of the competing claimants on the deceased; and
- The closeness of the relationship between competing claimants and the deceased.
The Superannuation (Resolution of Complaints) Act 1993 (Cth) allows a potential beneficiary who is dissatisfied with a decision made by a trustee to complain to the Superannuation Complaints Tribunal (SCT).
The SCT is only able to deal with the complaint if the complainant notifies it within 28 days of receiving a notice from the trustee that the payment will be made. That notice should also state that the complainant has a period of 28 days in which to complain to the SCT.
There are two ways in which a member can advise a superannuation trustee how the member wishes a benefit to be paid in the event of death and try to minimise disputes: a non-binding nomination or a binding nomination.
A non-binding nomination designates who should receive a death benefit and in what portions. This form of nomination may designate that a portion of the benefit is paid into the deceased’s estate or to a members spouse or children.
The main drawback of a non-binding nomination is that the trustee is not bound to act in accordance with it. In this respect the trustee may exercise its discretion and deem that it is more appropriate to pay the benefit in a way that does not accord to the non-binding nomination.
In the abovementioned situation a trustee will take the members wishes as expressed in the non-binding nomination into consideration when making its decision.
A non-binding nomination should be updated if ever there is a change of circumstances. For example, you may experience a separation or divorce, have additional children, or there may be a death in the family. The trustee should be informed of any changes that would likely affect the non-binding nomination.
Binding nominations bind the trustee to apply any benefits in accordance with nomination. The trustee has no discretion in the matter so long as the binding nominations are still valid.
Binding nominations only remain valid for a period of three years unless made in a self managed fund with less than four members and there is an appropriate clause in the trust deed governing the fund, in which case the period of validity may be longer than three years.
In the event that the binding nomination lapses and the member fails to renew it, then the trustee will decide who the benefit is paid to.
If a trustee fails to pay out a benefit in accordance with a valid binding nomination then the trustee may be personally liable for litigation costs incurred as a result.
Superannuation and Family Law
A persons superannuation entitlements can be divided between married couples upon divorce. The division can be either voluntary or ordered by the court.
Regulations set out the methods of valuing superannuation interests. Whether the benefit in question is a defined benefit or an accumulation benefit will make a difference to the valuation method. The regulations further set out the way in which the payment split is to be put into effect and also the information that the trustees must to provide to the parties.
The valuation and splitting of a benefit may be postponed under certain circumstances. This is useful if a defined benefit or a partially vested accumulation interest is involved. A superannuation benefit may be subject to “caveat” to prevent it being paid out until the non-entitled spouse’s interest is determined and paid. The starting point for splitting superannuation is an equal division of benefits accumulated during the relationship, however factors such as responsibilities for children under 18 and the preservation of farms may be taken into account.
A new interest can be created for non-member spouse in funds regulated by Commonwealth superannuation laws, or alternatively the amount rolled over into a new fund. The amount will be preserved as it had not been divided.
A good way at preventing disputes in respect to superannuation division is for couples to make binding superannuation agreements about how the superannuation will be divided if their relationship fails. This can prevent disputes from arising should the relationship fail at some later stage.
Disability Benefit Disputes
Disputes involving total and permanent disability benefits are also relatively common given that a determination as to whether a member is disabled as defined by the trust deed must be made. These type of benefits are often made between the trustee and an insurance company. As such, a dispute may also arise as to whether a person is disabled as defined in the insurance contract.
Other disputes can arise as to whether a person is covered by insurance at a particular time and by which insurance company. These occur when the trustee changes insurer. The question of when an incapacity occurs and which insurer is liable at the time can also arise.
A common dispute in respect to disability benefits relates to whether the insured meets the definition of the policy for the said disability. Further, trustees often finance the provision of death and permanent disability benefits through a group life insurance policy. Where the trustee is a commercial organisation the insurer is usually a related company.
Where the benefit is insurance-funded, the trust deed sometimes has the effect that the member is only entitled to the benefit if the insurer pays the insured benefit to the trustee. In this circumstance there are two separate decisions to be made. The insurer must determine whether the member is entitled to the insured benefit and the trustee must determine whether the member is entitled to a disability benefit. The trustee cannot allow the insurer to dictate what the trustee’s decision is to be. If the trustee considers that the insurer should pay the benefit the trustee may have a duty to press the insurer for payment.
In order to minimise any potential disputes, if a disability benefit is to be paid into a superannuation fund upon a disability event, you should ensure that you understand the conditions of release form the fund so you are aware how and when you may access the disability benefit.
At Pavuk Legal we can assist you by providing advice on creating certainty in your estate planning where your superannuation benefits are in question. This may help to reduce any family disputes in the event of your death and will also ensure that your superannuation benefit will be directed according to your wishes.
Alternatively, we are able to provide you advice in respect to challenging a trustee’s decision on the distribution of superannuation benefits.
Further, Pavuk Legal is highly experienced in the handling of disability benefit claims. Should you have a dispute with an insurer in respect to a disability benefit we are able to manage the claim process from start to finish.
For the full range of Legal Services that Pavuk Legal offers please go to: www.pavuklegal.com/services/