Being eligible to receive super death benefits
To be eligible to receive a death benefit from a superfund, the eligibility requirements as set out in the superannuation fund trust deed must be met. However, to be compliant with the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’), a superannuation trust deed will generally require the receiver of a death benefit to be either a ‘dependent’ or the legal personal representative (‘LPR’) of the deceased member to be considered an eligible person. Dependents are defined in the SIS Act to include:
- persons in an interdependent relationship with the deceased; and
- financial dependents of the deceased.
A legal personal representative is the deceased person’s executor or administrator (flowing into their estate).
Binding death benefit nominations
A superannuation trust deed may allow members to nominate their preferred death benefit beneficiaries. In some circumstances, the nomination made by the member will be binding on the trustee, meaning that the trustee will be compelled to pay the death benefit in accordance with the nomination.
In order for a nomination to be binding, the trust deed must allow for a binding nomination to be made and the binding nomination must nominate eligible beneficiaries.
In order for a binding nomination to be validly created it also needs to meet the following requirements mandated under the SIS Act (unless it is a SMSF but even SMSF trust deeds will generally require some if not all of the following):
- the nomination must be in writing;
- the nomination must be signed and dated by the member in the presence of two adult witnesses not mentioned in the nomination with each witness having signed and dated a declaration that the nomination was signed by the member in their presence;
- the nomination must set out in readily ascertainable terms the proportion of the death benefit to be paid to the nominated persons; and
- the nomination must cease to have effect 3 years after it is signed unless earlier revoked by the member or the trust deed (unless consent of the trustee can be otherwise obtained – see section 59 of the SIS Act).
The trustee’s discretion
If there is no valid death benefit binding nomination in place and the trust deed does not stipulate a particular distribution of death benefits, the trustee will have the discretion to distribute the benefits to one or more of the eligible recipients mentioned in the previous slide. It is the employees of the industry and public sector funds who will gather and prepare information and then submit such information to the board of the superannuation fund so that their discretion can be exercised.
If, after considering the information submitted, the trustee sees it fit to pay the superannuation death benefit to the LPR they may do so. If the trustee makes the decision to pay the death benefit to the LPR, the death benefit will then be distributed by the LPR in accordance with the deceased member’s Will or in accordance with the provisions of intestacy.
The process is different with a SMSF and generally if there is a surviving trustee, they will be eligible to take the death benefit personally.
Review of the trustee’s decision
If the fund is regulated by the Australian Prudential Regulation Authority (‘APRA’) or is a public sector fund regulated under the SIS Act, complaints in relation to the payment death benefits are to be made to the Australian Financial Complaints Authority (‘AFCA’).
The procedure first grants a 28-day objection period from the written notice of a trustee’s decision. If an objection is made within such period but rejected by the trustee, the claimant then has a further 28 days to make a complaint to AFCA. The 28-day period is strict and if it expires the right to bring the claim will be lost.
When processing a complaint, AFCA must stand in the shoes of the trustee and decide whether the trustee’s decision was fair and reasonable in the circumstances of the case.
AFCA’s position is not to determine whether the decision of the trustee was the correct or preferable decision but rather AFCA must uphold a decision if it is satisfied that the decision the subject of review was fair and reasonable in the circumstances.
Decisions made by AFCA are not precedents for future AFCA determinations and each complaint must be dealt with on its own facts.
Seeking a review of a trustee decision of an APRA regulated superfund can also be perused through the state courts. This kind of common law review is also currently the only option to review decisions of trustees of SMSFs.
The issue is that commonly SMSF trust deeds will grant the trustee a broad discretion to distribute death benefits among eligible beneficiaries. Therefore, the exercise of such discretion will not be reviewable by a court if the trustee acted in good faith and exercised their discretion based on real and genuine consideration of the facts of the case.
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