Death benefit disputes

Contributed by Paul Bingham and Graham Young and current to 1 September 2005

Disputes about death benefits are common. In addition to the benefits which have accumulated in the fund at the date of death, many funds provide substantial life insurance benefits, which are added to the accumulated benefit.

The death benefit is, however, usually not paid according to the will of the deceased, but is paid according to the discretion of the trustee of the fund in accordance with the trust deed. The trust deed usually sets out a description of the class of people to whom the benefit can be paid – typically, the immediate family of the deceased or those wholly or partially dependent on 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 having the trustee make a decision and possibly begin a dispute.

Disputes can arise between possible beneficiaries about whether, for example, a particular person is wholly or partially dependent on the deceased; or, if more than one person satisfies the description of the class of beneficiaries, whether the trustee should exercise its discretion to determine how the benefit should be divided between the claimants.

These problems become acute when the deceased was involved in more than one family or partner during life.

Factors often taken into account by trustees 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 need 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 the 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 (see below).

The Tribunal is only able to deal with the complaint if the complainant notifies the Tribunal 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 Tribunal.

SUPERANNUATION AND FAMILY LAW

From 28 December 2002, a person’s superannuation entitlements can be divided between married couples who divorce. The division can either be voluntary or ordered by the Court. This can only be done in respect of married couples who divorce, although de facto couples may soon be affected under proposed legislation.

Regulations set out the methods of valuing superannuation interests. Obviously, whether the benefit in question is a defined benefit or an accumulation benefit makes a difference to the valuation method. The regulations also set out the way in which the payment split is to be put into effect and also the information that the trustees have to provide to the parties.

The valuation and splitting of a benefit can be postponed. This can be 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, but 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 the nonmember spouse in funds regulated by Commonwealth superannuation laws, or the amount can be rolled over into a new fund. The amount will be preserved as if it had not been divided. Couples can make binding superannuation agreements about how the superannuation will be divided if their relationship fails.