Legal Tip 187: Being Both Executor of a Deceased Estate and Applying for Super Death Benefits

The executor of an estate has fiduciary duties to maximise the estate of the decreased. There can be conflicts of interest where someone is both executor and they apply, in their personal capacity, for the superannuation death benefits of the deceased, and this is because they are trying to avoid having the super death benefits paid into the estate, to benefit themselves.


Example

Mum and Dad divorce many years ago, son dies without a will. Son has about $40k in assets plus about $400,000 in super death benefits. Under the intestacy laws where a person dies without a spouse and children then both parents will benefit equally from the estate.

The issue here is that $40k is in the estate and will go to each parent in the share of $20k each.

If the superfund pays the death benefits to the estate the parents will get another $200,000 each.

If the superfund pays the mum, dad will miss out on $200k and similar if the superfund pays dad.

But, by mum applying for the benefit herself she is depriving the estate the money which means she is potentially breaching her duties as executor. As executor she should be asking the superfund to pay the money into the estate – it is her legal duty to do so.


Moral of the story – seek legal advice before accepting the position of executor, especially if the deceased

 

@Terry_w - If the benefit is paid to the super fund then distributed according to the super rules (binding nomination or otherwise), is tax then payable by the beneficiaires being non-dependents?

 

Yes if no dependants can benefit. A good reason to have a super proceeds trust incorporated into a will.

 

If mum is entitled to the benefit, I can’t see why as executor she would have a legal obligation to seek to have it put into the estate. If she had no legal entitlement to the benefit and applied to receive it, then she cld have a problem if she is acting as executor of the estate.

 

By not asking for the benefits to be paid to the estate she is breaching her duties and because she has applied herself this is a conflict of interest.

 

I've attempted to cover this as much as I can by directing the Trustee of my SMSF via a Binding Death Benefits Nomination to pay 100% to my Estate. Included in my Discretionary Testamentary Trust Will a superannuation benefits proceeds trust.

Also gifted to the Executors the shares I own in the Corporate Trustee for non-fixed Trusts.

I've done about as much as I could think of but will continue to review it periodically. Took quite a while to develop the arrangements with legal advice.

I understand my arrangements can also be dealt with via a Corporate Trustee established for an existing DTT following my wife's death.

 

Sounds good Satayking. Have you considered control of the appointor position for the existing dtt?

 

There is provision for the trustee(s) to resign and give power to an appointor who has the right to remove a trustee if necessary. Multiple appointors are required to act jointly. Getting my head around the various associated clauses isn't intuitive by any means - at least for me.

I should point out the above are in my will. I'm no longer involved in administering my late wife's estate. Only reason a CT was established was due to me being a beneficiary as well as executor so there was a conflict of interest.

Although there are general similarities, my will is way different and probably more comprehensive with aspects such as parallel trusts, splits trust and the like included.

 

Watch out for clauses rewquiring joint appointors to act unanimously as there is a wa trust now unable to operate as family members won't agree

 

Rather awkward for the particular trust.

I'll have to look it up (a fair bit to wade through on a Sunday morning) but I believe the requirement is to act jointly.

Plus from memory (again it is soon to be Sunday morning brunch time) it isn't one trust as such but beneficiary controlled testamentary trusts.

As always interesting stuff none of which would be required I guess if all had ethics and a sense of what is the right thing to do by and for others. My utopian view of the world - apart from being nasty by inserting an age discrimination clause of 35 to opt out.

 

If there are multiple trusts then each is separate and just starts off with the same deed. Each trust may then be modified to suit particular circumstances.