Super death benefits and conflicts of interest: Guilt is a useless emotion**

Previous View posts have explored arguably the highest profile decision in relation to the obligation of a legal personal representative (LPR) to avoid creating a conflict of interest is the decision in MacIntosh.

The decision in Brine v Carter [2015] SASC 205 provides another example of the key issues that need to be considered by LPRs, who are also potential beneficiaries of a superannuation death benefit.

In summary, the factual scenario was as follows:

1. The deceased appointed his de facto partner and three children from an earlier relationship as his LPR.
2. The de facto made an application for the superannuation death benefits to be paid to her directly, as opposed to the estate.
3. If the superannuation proceeds had been paid to the estate, the three children would have been entitled.
4. For a period of time prior to the death benefit being paid, the de facto partner withheld details of the superannuation death benefit from the three children.
5. Importantly however, by the time the super fund trustee exercised its discretion, the three children were aware of all relevant information concerning the death benefits and had themselves made an application for the death benefits to be paid to the estate.
6. It was held that this was a critical point, that is, the other LPRs had effectively consented to the de facto making her individual claim by themselves making a claim on behalf of the estate in full knowledge of all relevant circumstances.

While the decision of the superannuation fund to pay the entitlements to the de facto ultimately was upheld, a number of key principles were explained by the court, including:

1. Where an LPR seeks payment of a death benefit to themselves personally (i.e. not to the estate), they will be in a position of conflict, unless the will expressly permits the conduct.
2. Where there is no express provision waiving conflict, an LPR should renounce their position before taking any active steps to seek personal payment of the death benefit.
3. Alternatively, the LPR can seek the consent of all other LPRs (if any).
4. In seeking the consent of the other LPRs, there is no obligation to also receive consent from each beneficiary under the will.
5. Complications will likely arise where there is a sole LPR. In that instance, if they choose not to renounce their role, there would be an obligation to receive the informed consent of each potential beneficiary.

Ultimately, the decision is yet another reminder of the importance of a holistic approach to every estate plan.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title today is riffed from New Order’s song of the same name, from 2005, listen here:

Death is not the end (... for a former spouse when somebody else takes their place**)

Following recent posts, the decision in Scott v Scott [2009] NSWSC 567 is a relevant case to be aware of in the context of the prospects of a former spouse seeking to challenge the deceased estate of their former spouse.

Relevantly the court held the following key principles are applicable, namely:

1. In most cases the achievement of a final property settlement in the Family Court would be seen by the parties, in current social circumstances, as terminating any moral claim of a former spouse to provision in the will of the other.
2. This said, public policy, must adapt itself to legislation that creates a specific entitlement for a former spouse to claim. These rules in essence contemplate there will be cases where such a claim will succeed, notwithstanding the public policy of finality of property settlement.
3. A former spouse who has been accorded all rights under a property settlement and does not have any continuing entitlement to maintenance, is not generally regarded as a natural object of testamentary recognition.
4. Even if the former spouses have not divorced or entered into a property settlement, there is the threshold question as to what might be adequate provision in all the circumstances. Those circumstances must take into account both the fact of separation from the deceased and the fact that, as between themselves, a division of their assets is likely to have already been effected.
5. Therefore as long as the deceased takes steps to effect an amicable and relatively fair division of all assets this will normally terminate any moral claim the deceased might have had to the former spouse.

One iteration on the above comments however is that even where an ex-spouse is not receiving maintenance (which may give them a right to challenge the deceased estate) they may be ‘entitled’ to be receiving maintenance.

If this is the case then the former spouse may fall within the category of persons entitled to challenge (under the extended definition of 'spouse').

In this regard, in the case of Ryan v Harrison [2020] QSC 267 it was confirmed:

1. 'Entitlement' must be an entitlement enforceable either by contract or court order (see Re Lack [1981] Qd R 112).
2. The entitlement will ordinarily need to involve a rightful claim or title to it; that is an established claim as opposed merely to an asserted or alleged one (see Krause v Sinclair [1983] 1 VR 73 and Sarich v Erceg [1984] WAR 11).
3. Where there is no order of the family court requiring continuing maintenance at the time of death, a former spouse must prove there was a contract or agreement between them and the deceased that created an entitlement to be receiving maintenance.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title of the post today is riffed from the David Bowie song ’Blackstar’. View here:

'The Vibe' and ruling from the grave: nothing breaks (like a heart)**

The legal doctrine of The Vibe was originally argued in the movie The Castle.

Arguably however it essentially captures the concept of courts making decisions driven by 'public policy' or what they believe to be 'in the public interest'.

One aspect of estate planning and asset protection that brings these concepts into sharp focus is a willmaker imposing conditions on provisions under their will about the personal relationships of a beneficiary.

One of the leading cases in this area dates from the mid 1800s and confirms that a trust (such as a life interest) for a surviving spouse can be structured to end automatically if the surviving spouse ceases to be 'single ... and living a chaste life' (see - Lloyd v Lloyd (1852) 2 Sim (NS) 255).

Similarly in Ramsay v Trustee Executors and Agency Co Ltd (1949) 77 CLR 321, a will gifted proceeds in trust “... to pay the income ... to my son ... for such period ... as he shall remain married to his present wife ... and on the termination of such period in trust for my ... son absolutely provided however that should my ... son predecease his said wife during such period ... my estate shall go to my ... nephew ... and my sister ... in equal shares.”

The court confirmed that:

1. This provision contained nothing which offended against public policy as having, or tending to have, an adverse effect on the son’s marriage and it was wholly valid.
2. The will was drafted to secure an income to the son during the marriage, and to prevent his wife obtaining any interest, either directly under the will, or indirectly through her husband’s will, in the corpus assets and there is nothing illegal in such an intention—it is simply a case of a willmaker choosing their beneficiaries.
3. By way of an analogy, it would be contrary to all experience to say that a remainderman of a life interest under a will, under which a person is entitled to property on the death of the life tenant, is exposed to a temptation to hasten the death of the life tenant.
4. Most people in a civilised community respect the sanctity of marriage as well as of life, and would not be induced by pecuniary gain to destroy one or the other. It is not reasonable to suppose that the terms of the will here create any practical conflict between the son’s duty as a husband and his interest as a beneficiary – future illegal or immoral activity (that is deliberately ending the marriage) is not to be presumed.

More recently decisions have upheld partial restraints on marriage, such as preventing marriage to a person with particular characteristics (including race and religion). For example, in Seidler v Schallhofer [1982] 2 NSWLR 80, there was an agreement which contemplated the continuation of a de facto relationship for a specified period but then required that the parties either marry or end the relationship. It was held that the agreement simply formalised the financial aspects of the relationship and was appropriate given current public policy notions.

More recently again is the decision of Ellaway v Lawson & Anor [2006] QSC 170. This case involved a will where the entitlements of one daughter were conditional on her divorce from her then current husband, or his death (assumedly due to natural causes), whichever occurred first.

Arguably applying The Vibe it was held the reason for the approach was the mother's desire to protect the daughter's finances - and not a wish to see the daughter get divorced or the son in law die. On this basis the provisions in the will were held to be valid.

Similarly, the decision in Jones v Krawczyk [2011] NSWSC 139 also involved a will where a daughter was prohibited from being a potential beneficiary of a testamentary trust so long as she was married to, or living with, her husband (his death was not specifically mentioned). The decision based on public policy, was that the restriction was valid as a being motivated by a desire to protect the daughter, rather than trying to force the daughter to get a divorce.

In contrast however, there remain situations where the courts will strike down agreements that will offend the public interest, perhaps the highest profile example being the claim bought by a form of 'defacto spouse' against married businessman Richard Pratt (see Ashton v Pratt (No 2) [2012] NSWSC 3).

In this case, Ashton sought to enforce a contract for 'mistress services' in return for Pratt establishing a trust for her and her children with $5 million and an ongoing income stream.

In rejecting the claim the court held that the extent of the relationship was simply for ‘meretricious sexual services’. The court's view was that such arrangements were contrary to public policy and thus illegal and unenforceable.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Mark Ronson (featuring Miley Cyrus) song ‘Nothing breaks like a heart’.

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