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:

How does it feel** - when a deed of rectification causes a resettlement?

Recently we revisited a Tax Office private ruling in relation to a decision by the trustee of a discretionary trust to rectify a trust deed so it correctly reflected the intentions of the settlor at the time of establishing the trust some years earlier.

The exact ruling is Authorisation Number 37630. As usual if you would like a copy please contact me.

Critically, the ruling is based on the assumption that a court would in fact approve the rectification – a rectification requires a court to make an order to correct a trust instrument that, due to mistake, does not reflect the true intention of the parties.

The specific issue of concern was whether the rectification would create a new trust, or in other words, a resettlement, to be triggered.

The private ruling remains a very useful reminder of the usefulness of rectifications, even though it is from 2004 and therefore predates the substantial changes in approach about resettlements in 2012 of the Tax Office (see the other View posts on this issue).

The ruling confirms that where a trust deed fails to accurately express the true agreement between the parties, equity will allow rectification of the document.

In particular, it was confirmed that:

‘The object of rectification is not to make a new contract for the parties or to alter the terms of an agreement, nor to rescind the existing contract it does not create new rights but to rectify the erroneous expression of agreements in documents' (see GE Dal Pont, DRC Chalmers - Equity and trusts in Australia and New Zealand).

Importantly, a rectification also has retrospective effect.

That is, a rectification is 'to be read as if it had been originally drawn in its rectified form' (see Craddock Bros v. Hunt [1923] 2 Ch 136.

As there is no change in the intended beneficial interest of the beneficiaries there are also no changes to the terms and conditions of the trust. Therefore, a rectification does not result in the creation of a new trust.

** For the trainspotters, ‘how does it feel’ is a line from the New Order song from 1983 ‘Blue Monday’ listen hear (sic):

Embrace the ceremony** and ‘read the deed’

As highlighted in previous posts, the need to ‘read the deed’ before making any variation to a trust deed is critical – and a case that remains a leading example of the mantra is Jenkins v Ellett [2007] QSC 154.

Broadly the background in this case was as follows:

1. A principal under a trust deed had the ability to remove and appoint the trustee of the trust.
2. The principal purported to relay on a power of variation to remove himself as principal and name a replacement, which effectively changed the schedule to the trust deed that automatically appointed the principal’s legal personal representative (LPR) as his replacement on death.
3. When the LPR of the principal purported to exercise the principal powers following the death of the original principal and was challenged, the Court held that the previous attempted variation was invalid, effectively confirming the LPR’s authority to act as the principal.
4. The attempted variation was held to be invalid because the relevant power in the trust deed was crafted so that it could only be used in relation to the ‘trusts declared’, and in particular did not extend to varying the schedule to the trust deed.

Generally the decision here is cited as authority for a number of principles including:

1. If an attempt is made to made to amend fundamental provisions (such as appointor powers or indeed the amendment power itself), there must be a specific ability to do so under the trust instrument. This said, if the power to vary under a deed is wide, this can allow a trustee to change an appointor without their consent; and without destroying the substratum of the deed (see Cihan v Cihan [2022] NSWSC 538, a case explored in other View posts);
2. conversely, ancillary provisions should be able to be amended so long as there is a robust power of amendment in the trust deed;
3. this said, the trust deed may expressly prohibit certain amendments, thereby effectively ‘hard wiring’ those clauses;
4. furthermore, the exercise of a power of amendment must comply with any restrictions on the exercise of power, for example the need to obtain prior consent from a principal or appointor. The case of Re Cavill Hotels P/L [1998] 1 Qd R 396 (which has featured in previous posts) is also often quoted in this regard);
5. any power of variation should be construed widely and beneficially, such that (as one example), even if there is no specific power to amend or extend a vesting date, a wide power of variation will give this ability (see Nisus Pty Ltd [2022] NSWSC 369);
6. in situations where the purported amendment is not within the powers under the deed (or has the consequence of destroying the ‘substratum’ of the trust) it will be held to be invalid and ineffective; see for example Kearns v Hill (1990) 21 NSWLR 107.

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 New Order song ‘Ceremony’.

Listen here:

The fine line (& time)** between being entitled … and not

An often over looked aspect of estate planning related to the payment of death benefits from a superannuation fund.

While with a gift under a will a beneficiary who dies after the willmaker, but before the distribution is made, will still (through their own estate) be entitled, this generally is not the case with superannuation benefits.

Arguably the leading case in this area is Webb v Teeling [2009] FCA 1094.

In summary the factual scenario was as follows -

1. a member of a super fund had passed away, validly nominating a dependant to receive the death benefit;
2. the dependant was alive at the time of the member’s death;
3. the dependant however subsequently died before the death benefit was paid and their legal personal representative (LPR) sort payment to the originally nominated beneficiary's estate.

It was held that the death benefit could not be paid to the LPR of the deceased dependant because they were neither:

1. a dependant of the deceased member; or
2. the deceased member’s LPR.

With the aid of hindsight, the workaround in similar situations is to ensure that if the nominated beneficiary dies before the death benefit is paid, the funds should pass (ideally under a binding nomination) to the LPR of the member.

The member's will should then direct the amount specifically to the intended recipients and can do so without restriction as the superannuation rules will have been complied with by the initial payment to the member's LPR.

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

** for the trainspotters, ‘Fine Time’ is a song from New Order.

View hear (sic):