What is the extent of a personal representative’s duty to call on superannuation proceeds?
Given the analysis of this question undertaken in McIntosh v McIntosh [2014] QSC 99 (McIntosh) and Brine v Carter [2015] SASC 205 (Brine), practitioners would be forgiven for thinking the permutations around that duty were settled.
However, thanks to two recent Western Australian decisions – Denise Hilda Burgess as administrator of the estate of Brian Michael Burgess v Burgess [2018] WASC 279 (Burgess) and Gonciarz v Bienias [2019] WASC 104 (Gonciarz) – the courts have considered a number of nuanced circumstances that broaden and deepen our understanding of the extent of the duty.
In McIntosh and Brine, the conduct of the personal representatives was less than optimal. Both behaved in a covert and misleading manner to advance their own interests. But what of a personal representative who honestly, but mistakenly, makes a competing application, who then takes all steps to rectify the mistake, and who is transparent and open to the parties and the court as to the circumstances?
Burgess was one such circumstance. The court opened its judgement with an experience most of us have with clients.
“The facts underlying the present application are relatively commonplace, but the problem they present is legally complex.”1
A de facto couple with two young children was struck down when the husband and father died without a will. While at the time of his death he was in stable fixed employment, prior to that he was a fly-in, fly-out worker who had accumulated four different superannuation policies with benefits, including death benefits attaching on his death.2
There was about a year between his date of death and his de facto becoming appointed as administrator of his estate.3 Prior to her appointment, she made application for the proceeds of two funds to be paid to her in her personal capacity. One superannuation fund paid the proceeds to her prior to her appointment as administrator. However, the second fund paid it to her six months after her appointment.4 The third superannuation fund paid modest proceeds to the estate.5 The fourth fund had not made a determination at the time of the hearing.
So, the application presented “an issue concerning the likely conflict of interest”6 between her position as an administrator of the estate in which she owed fiduciary duties to the estate and that of her position and entitlements as one of three beneficiaries of the estate.
Underlying the application was the manner in which an intestate estate is distributed on death. This is relevant in the context that intestacy entitlements differ from state to state, as do the eligible persons.7
In this case, the intestate estate was distributed between the widow and her two infant children for which she had the responsibility of care.
The primary question before the court was whether the widow was required to account for the funds that she had received after the grant, and whether she was able to receive the funds being held in abeyance in the fourth fund. In seeking those answers, she sought for the court to distinguish McIntosh on the facts, or for it not to be followed.8
In considering the matters, the court was at pains to observe that there was not “the slightest suggestion of any misdealing conduct or misappropriation of any of the superannuation payment funds received by Mrs Burgess”.9 In respect of the facts of this matter, the court lamented that “hard cases make bad law”.10
The court went through how the widow had dealt with funds she received, with a significant portion being put towards a home for herself and her children,11 and the creation of an apparent estate’s proceeds trust for her children.12
Mrs Burgess sought to rely on s75 Trustee Act 1962 (WA), a provision that empowers the court to excuse the actions of a trustee when those actions are honest, reasonable and ought fairly to be excused. This provision is mirrored in other states.13
After carefully considering the submission and the applicable passages from McIntosh, the court focused on the duty. It found:
“The nature of an administrator’s fiduciary position is such that it requires the fiduciary’s undivided loyalty in pursuing exclusively the interests of beneficiary parties – to the exclusion of all other rival interests. The rigor of the fidelity required of trustees and those who discharge equivalent positions by courts of equity over centuries has never diminished. Across time, celebrated prior cases such as Keech v Sandford (1726) Sel Cas 61; 25 ER 223 and Boardman v Phipps [1966] UKHL 2; [ 1967] 2 AC 46 provide merely two of many examples of situations where what on the face of it might otherwise be regarded as a harsh result taken against the actions of a trustee, was necessary to preserve the integrity of the office of trustee…14
“In an age of increasing moral ambivalence in western society the rigor of a court of equity must endure. It will not be shaken as regards what is a sacred obligation of total and uncompromised fidelity required of a trustee. Here, that required the administrator not just to disclose the existence of the (rival) estate interest when claiming the superannuation moneys in her own right from the fund trustee. It required more. It required her to apply as administrator of the estate for it to receive the funds in any exercise of the fund trustee’s discretion.”15
Martin J went on to affirm that “…the approach of Atkinson J taken in McIntosh cannot be faulted as a matter of law. I would respectfully apply it here, even though the underlying facts are different. The interest of a deceased estate require a ‘champion’ who cannot be seen (even if they are not) to be acting halfheartedly, or with an eye to achieving outcomes other than an outcome that thoroughly advances the interests of the estate – to the exclusion of other claimants.”16 And on that basis the court refused her application and would not excuse her breach;17 and so ordered that she account, although the accounting was structured as a trust in the house for the children with offsets against the funds already placed into trust for them.
So, if the duty of a personal representative to the estate is one of “sacred obligation of total and uncompromised fidelity”18 and a court will not excuse the breach, is there another means open to disentangle what might otherwise be an innocently ignorant breach?
Gonciarz involved those elements.
It was a matter that came before the courts within about six months of the decision of Burgess, with the relevant events occurring before and crossing the decision. The deceased died intestate, on 4 August 2017, survived by his wife, brother and mother. His wife was appointed administrator of his estate on 18 December 2017.
His wife had two children from a prior relationship. Under West Australian intestacy laws, the deceased’s wife, brother and mother shared equally in his modest estate, the net value of which was $140,000.19 He, however, had a superannuation fund with a death benefit of $541,412.20. There was no binding nomination.
Prior to marrying the administrator, however, the deceased had made a non-binding nomination in favour of his brother. Prior to her appointment as administrator, the deceased’s wife completed a claim form calling for the superannuation to be paid to her. In completing the form, she did not identify any other claimant.
After she was appointed administrator, the fund sought for the details of the deceased’s stepchildren and brother to be provided. The wife’s solicitor complied with the request. The trustee subsequently determined to distribute the entire proceeds to the wife. However, the deceased’s brother objected to that decision.
Crucially, the brother asserted that he did not believe the deceased and the testator were living together at the date of the deceased’s death.20 The wife then commenced a claim for further provision from the estate, naming herself in her capacity as the administrator of the estate.
The brother and mother of the deceased then started a campaign of complaining about the administration of the estate. It escalated to the point that they lodged an application for her to file and serve accounts along with a plan of distribution.21 They then raised the issue of her claim for the superannuation fund, referring her to the decision of Burgess pressing the issue of conflict. As a result of becoming aware of the decision, the administrator promptly wrote to the superannuation trustees seeking for them to “disregard”22 all her previous claims on the funds. The trustee subsequently determined to pay the proceeds to the estate.
However, in advising of the decision the trustee revealed that the deceased’s brother asserted that the deceased and the administrator were not in a de facto relationship at the time of his death and that this was a factor in their determination.23
This allegation distressed the administrator and she sought for the brother and mother to consent to her resignation as administrator in order that she be free to respond to the allegation made to the superannuation trustee. They declined, resulting in the administrator applying to the court to resign as administrator.24 Relevantly, the administrator was suffering from depression and under medical care for the depression from within months of her husband’s death through to February 2019.25
The court considered its powers to revoke the grant,26 while considering, referring to and affirming the decisions of McIntosh and Burgess. The court considered the fact that she was making a claim for further provision in the estate, the acrimony between the parties, and how that would likely affect the matter moving forward.
Observing that the overarching principle in personal representatives acting in an estate is always contingent on the due administration of the estate, the court affirmed that “the death benefit is not an asset of the estate. Rather, it is a benefit that may vest in the estate, if, and only if, the Trustee exercises its discretion to pay the benefit to the estate and not wholly to the plaintiff.”27
The court found that the administrator was in a conflict of interest with the estate, that it was in her own interest to challenge the trustee’s decision, and that compelling her to administer the estate when she no longer wished to do so was not for the benefit of the estate. It would be “inimical to the due and proper administration of the estate and to the interests of the parties beneficially entitled to it. If the plaintiff was compelled against her wishes to continue with the administration I fear that is inevitable the level of disputation experienced in the past will be perpetuated.”28
So, what do the cases tell us?
1. A personal representative, be they an administrator or executor has the same fiduciary duty of “sacred obligation of
total and uncompromised fidelity”29 to the estate to the exclusion of all others.
2. A conflict will arise when a personal representative seeks to raise a claim on the superannuation for themselves after
they have been appointed, or receive the funds after they have been appointed.30
3. Timing is relevant to the duty being engaged, that is a decision or payment by the trustee made after the appointment will place the personal representative in conflict.31
4. In respect of an executor, the conflict can be authorised by the testator, however, it requires evidence that the deceased was fully informed of the circumstances.32
5. When the executor is not authorised by the testator, then as to whether the conflict is excused will be a matter of whether there was consent of the beneficiaries. Crucial to this aspect is a factor of causation.33
6. When in conflict a personal representative must account to the estate, however the mechanism of that accounting can
involve considerations of how the personal representative has dealt with the funds received at the time of the application.34
7. A personal representative who finds themselves in conflict may be able to extricate from that conflict by applying to the court to have the grant revoked. Whether it will be revoked is contingent on the status of the administration of the estate and the conduct of the parties.35
Christine Smyth is a former President of Queensland Law Society, and a QLS Accredited Specialist (succession law) – Qld. She is an executive committee member of the Law Council Australia – Legal Practice Section, Court Appointed Estate Account Assessor, and member of the QLS Specialist Accreditation Board, Proctor Editorial Committee, QLS Succession Law Committee and STEP.
Notes
1 Burgess at [1].
2 At [2]-[3].
3 At [3].
4 At [8]-[9].
5 At [9].
6 At [13].
7 In Western Australia the entitlements of a de facto spouse will depend on the number of years the parties were in a de facto relationship. The precondition of the number of years changes and increases from two to five if the deceased was also
legally married at the time; if so it will then depend on the status of that marriage during that time frame. And it will also alter when there are children. See s15 Administration Act 1903 (WA).
8 At [11].
9 At [24].
10 Per Martin J at [16].
11 At [24].
12 For a discussion on estate proceeds trusts, see the writer’s co-authored article published by the Australian Tax Institute Journal, ‘Successful Succession: Estate proceeds trusts: benefits for families’, by Christine Smyth and Katerina Peiros, Taxation in Australia Vol.51(4).
13 See s76 Trusts Act 1973 (Qld); s85 Trustee Act 1925 (NSW); s67 Trustee Act 1958 (Vic.); s56 Trustee Act 1936 (SA); s50 Trustee Act 1898 (Tas.); s85 Trustee Act 1925 (ACT).
14 At [83].
15 At [84].
16 At [85].
17 At [86].
18 Ibid.
19 Gonciarz at [5].
20 At [8]-[13].
21 At [14].
22 At [22].
23 At [25]-[27].
24 At [27]-[29].
25 At [30].
26 At [31]-[38].
27 At [38]-[43].
28 At [40].
29 Burgess at [84].
30 McIntosh, Burgess.
31 Burgess.
32 Brine.
33 Brine.
34 Burgess.
35 Gonciarz.