Death benefit disputes
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.
A member can 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. It must be renewed every three years to remain binding.
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 during life.
Factors 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 (SCT) (see “Review in the Superannuation Complaints Tribunal”).
Note that from 1 November 2018, the Australian Financial Complaints Authority will replace the Financial Ombudsman Service, the Superannuation Complaints Tribunal and the Credit and Investments Ombudsman.
The SCT is only able to deal with the complaint if the complainant notifies it 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 SCT.
From 28 December 2002, a person’s superannuation entitlements can be divided between married and de facto couples. The division can either be voluntary or ordered by the court.
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 a “caveat” to prevent it being paid out until the non-entitled partner’s interest is determined and paid. The starting point for splitting superannuation is an equal division of benefits accumulated during the relationship, but certain factors (e.g. responsibilities for children under 18 and preserving farms) may be taken into account.
A new interest can be created for the non-member partner 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.
Disputes about total and permanent disability benefits are also common, since a determination of whether the member is disabled as defined by the trust deed must be made. Such benefits are often provided by way of an insurance policy between the trustee and an insurance company. So, a dispute can also arise as to whether the person is disabled as defined in the insurance contract.
Other disputes can arise about whether a person is covered by insurance at a particular time, and by which insurance company. These disputes occur because the trustee has changed insurer. The question of when incapacity occurs and which insurer is liable at that time can also arise.
The definition of “total and permanent disability” varies between trust deeds. A common definition requires the member to have been absent from work due to disability for at least six months. The trustee must also think that the member is unlikely to ever work in any profession, trade or occupation for which the member is reasonably suited by education, training or experience.
Work for which the member is “reasonably suited by education, training or experience” is work for which the member is neither overqualified nor unqualified. For example, a carpenter who could work as a clerk is regarded as totally and permanently disabled within this definition because such work is not suitable, given his carpentry experience.
Other common definitions require the member to be unlikely, in the trustee’s opinion, to ever again work in their usual occupation (an easier test for the member to satisfy), or to engage in any gainful occupation (a more difficult test). “Any gainful occupation” means any occupation that the member is reasonably capable of undertaking, considering their education, experience or training, or that the member could reasonably be trained to perform. Therefore, a person who is physically capable of performing a clerical job but cannot read or write may be unable to engage in “any gainful occupation”.
Trustees often, but not always, finance the provision of death and total and permanent disability benefits through a group life insurance policy. Where the trustee is a commercial organisation, the insurer is usually a related company.
Where the benefit is insurance-funded, sometimes the member is only entitled to the benefit if the insurer pays the insured benefit to the trustee. But there are still two decisions to be made. The insurer must decide whether the member is entitled to the insured benefit, and the trustee must decide whether the member is entitled to a disability benefit.
The trustee must not allow the insurer to dictate their decision. If the trustee considers that the insurer should pay the benefit, the trustee may have a duty to press the insurer for payment.