The more complex issues are: who becomes the trustee in the place of the deceased member; and what is the process by which they are appointed.
The replacement trustee will be the person who makes decisions about the distribution of the deceased member’s death benefit. Because they have a key part in the death benefit payment process, a super fund member should select this person with great care.
The super laws say that the deceased’s legal personal representative can be appointed to act as trustee for the member. Under these super laws the legal personal representative must be appointed within six months of death – otherwise the death benefit has to be paid out.
However, the actual appointment of the replacement trustee must occur in accordance with the governing rules of the super fund because the super laws do not provide a mechanism for their appointment.
Many self-managed super fund trust deeds say that if the fund has individual trustees then the members will be given the power to appoint the trustees.
As previously mentioned, many SMSF trust deeds automatically terminate the deceased member as a trustee upon death, but are they automatically removed as a member? Many SMSF trust deeds say that the deceased member will ceases to be a member when all of their member benefits have been paid (or commenced to be paid, if the benefit is paid as a pension).
As the members have the right to appoint trustees, the right of the deceased member to appoint a trustee will vest in their legal personal representative (who represents the deceased member’s interests) and any remaining members.
Some SMSF trust deeds automatically appoint the deceased’s legal personal representative as the replacement trustee. The appointment of the replacement trustee is vital when there is no binding death benefit nomination in place or if the BDBN can be challenged.
What about an SMSF with corporate trustees? The replacement trustee is likely to be influenced by the sharehold- ing of the corporate trustee, the constitution of that corporation and the governing rules of the fund.
If the deceased member held shares in the corporate trustee, then those shares will form part of the deceased member’s estate and may be passed via their Will. (The rights of appointment will also pass with the change in ownership of those shares.)
So far so good and all this seems fairly straightforward. But there are three potential problems that can arise with both individual and corporate trustees:
1. There is no legal personal representative for a period of time after death; 2. The legal personal representative has no vote as a “member” in the appointment of a trustee; 3. The legal personal representative is out-voted by the other continuing trustees. When these problems arise the continuing trustees or directors may be left to exercise the trustee’s discretion in relation to the payment of the death benefit. Would they be acting according to the deceased’s wishes?
So who is the deceased’s legal personal representative? The super laws say it is the executor of the Will or adminis- trator of the estate of a deceased person. These appointments must be made by the courts because it is up to a judge to decide if a document presented to it is valid. This is especially important when two or more documents are found.
WHO CAN RECEIVE A SUPER FUND DEATH BENEFIT?
Under the super laws, death benefits can be paid to a super fund member’s dependants or legal personal representa- tive (LPR). If, after reasonable inquiries, neither a dependant nor LPR can be found, then a death benefit can be paid to any other individual.
Before a super fund trustee pays a death benefit to the executors they should seek proof that probate has been granted in respect of the Will.
When a person dies intestate (that is, without a Will) someone will need to apply to the court to administer the deceased estate so that the super death benefit can be paid. Sometimes there is no Will and no one willing to administer the estate.
When this occurs the Public Trustee often steps in if the deceased’s next of kin agrees with the appointment.
Who are these dependants? It is essential to check a super fund’s trust deed. The discussion that follows looks at the super laws. A super fund’s trust deed cannot be less strict than these rules but it may be stricter.
Under the super laws a dependant includes the deceased’s spouse, any child of the deceased and any person deemed to be in an “interdependency relationship” with the deceased.
A spouse includes a de facto spouse – and since July 2008, spouse has also included a same-sex spouse with whom a person is in a relationship that is registered under a state or territory law and where the couple live together on a genuine domestic basis.
In some cases it is necessary to establish if a de facto relationship exists. A super fund trustee will need to gather evidence.
It can be particularly difficult if there are children or other family members disputing the existence of a de facto relationship when the trustees are trying to determine to whom they should pay the death benefit.
Short-term de facto relationships may be difficult to prove. The same applies to de facto relationships involving frequent separations and reunions.
Finally, in relation to de facto spouses, the Superannuation Complaints Tribu- nal (SCT) has determined that there was sufficient evidence of a de facto relationship between a 17-year-old boy and a 16-year-old girl over an 18-month period when they had lived either with the boy’s mother or father.
