Law Talks Episode: Fighting for super – disputes over who should receive someone’s superannuation after they die

Robyn:  Good morning and welcome to another edition of 4CRB’s Law Talks and today we’re going to discuss a case that was in the news recently that shines a spotlight on the disputes that can erupt over someone’s superannuation benefit after they die. With me today is April Kennedy, Special Counsel in Estate Litigation from Attwood Marshall Lawyers.

April, welcome to the show. 

April: Thank you for having me, Robyn.

Robyn: So, before we get too deep into the details, can you introduce the case we will be discussing today and explain why this one made the news? 

April: Yeah, so this is a superannuation dispute, and it’s a bit of a fight, or a bitter fight, between the family of a gentleman who passed away and his former spouse – that’s the issue that’s in contention, but I just want to, first of all warn the listeners that this story will contain a discussion about suicide.

Robyn: Okay.

April: So, I just thought I would make that clear early on. So, the parties that are involved in this particular situation were two men in a same sex relationship.

It also looks at the role of a binding death benefit nomination, with respect to superannuation, how they work and why it’s necessary to regularly review them.

Robyn: Okay.

April: Now, this case was reported in the Australian Financial Review and the man who passed away, his name was Pino, he took his life on the 1st of September 2019. But the day he took his life, he texted his sister telling her that he wanted to leave his property and assets to his family and no one else. 

Shortly before that, I believe it was about nine months or within three years before the day that he passed away, he made a binding death benefit nomination that named his de facto partner, James, as the sole beneficiary to receive his superannuation benefits, which were about 1.2 million dollars.

So, superannuation is considered now to be one of the assets that hold the greatest value aside from property, and insurances. It’s a growing area of wealth. So, we really need to give some consideration to superannuation, but that aside, we’ll go into that in a moment.

But, Pino and James, they met in March 2006, and they moved in together a month later.  They were, well, James says that he and Pino were informally married overseas in 2013, and their relationship continued until Pino’s death in 2019. But Pino’s mother, along with Pino’s siblings argued that the relationship ended in about 2016 and 17, and certainly by the date of his death, despite the fact that they remained friends.

So, whether or not Pino and James remained in a de facto relationship until Pino’s death was at the centre of this dispute, because it was a requirement for the binding death benefit nomination that Pino made, to remain valid, and that would give everything to James, or otherwise, it would determine whether the trustee of the superannuation fund could exercise its discretion to pay to other beneficiaries.

Robyn: Okay.

April: So, with the family embroiled in a dispute about who should ultimately receive these superannuation benefits, the dispute lasted five years.  And it was finally determined by the Federal Court of Australia Appeal, in an appeal hearing this year with James being successful and being awarded the superannuation death benefits.

Robyn: What a terrible ordeal for the family to have to go through and following such tragic circumstances. How did the court come to the conclusion that James should be entitled to the super benefits, despite the deceased’s text message to his sister that this was ultimately not what he wished?

April: So, whether or not Pino and James were in a de facto relationship at the date of his death was the main issue in dispute. And it was really a discussion or an argument as to whether the text message that Pino sent to his sister terminated the relationship. And it went through four different stages to ultimately get to the appeal.

The superannuation trustee determined that they were not in a de facto relationship. 

The matter was then taken to AFCA, so the Australian Financial Complaints Authority, where superannuation disputes go to, and AFCA determined that they were in a de facto relationship. 

The matter then went to a federal court and that decision was overturned and it was considered they were not in a de facto relationship before it ultimately was appealed and decided that yes, they were in a de facto relationship. 

So, it took a very long journey to get to the other side. But, they were arguing about whether the text message terminated the relationship. And whether that then allowed the trustee to determine who should the payments be made to.

So, there were, uh, the family was trying to argue that AFCA had made an error at law by construing that the text message did not end the relationship, but the, in the federal court appeal, the judge stated the only conduct which unambiguously affected the end of the relationship was Peno’s suicide. But that conduct could not stand as having ended the relationship prior to his death.

What was essentially being relayed there was that the text message itself could not have ended the relationship, that there did not appear to be any evidence that showed the relationship came to an end before Pino passed away. It only ended because Pino took his life. That’s how the court decided. 

Robyn: So, can you explain to us why superannuation is treated differently to other assets when it comes to inheritance disputes? 

April: So this is an area of law that is very complex and It’s fast growing, and it is a common misconception that superannuation is not included as an asset of someone’s estate when they passed away.

So, an asset of your estate is one that is dealt with in accordance with the terms of your will. So, one that you can deal with in your will or give, you know, you can give your superannuation to a beneficiary in your will. You can, so long as you structure it properly, but it’s not automatically considered as an asset of your estate.

It is governed by different rules and regulations, and it is at the discretion of the Superfund trustee as to who should receive the benefits if a member dies.

Unless there is a Binding Death Benefit nomination in place to instruct the super trustee as to who the benefits should be paid to. So think of the Binding Death Benefit nomination as almost like a will for your superannuation.

It’s going to inform the superannuation trustee as to who you would want your superannuation benefits to be paid to. So you can structure your superannuation so it is paid to your estate,  but a lot of people tend to forget about their superannuation when they do their estate planning, or if they don’t go to a solicitor who has knowledge and experience in estate planning and looking at all of your structures to properly, to give you a proper strategy.

But not only do they forget about their superannuation altogether, they might make a binding death benefit nomination when they initially set up their superannuation years ago and then forget about it. So, it lapses. Unlike a will, when you make a binding death benefit nomination, it lapses after three years.

So, the trustee is not bound to follow the directions that you provided unless you update it. Unless you prepare, a non-lapsing binding death benefit nomination. So there’s, there’s a lot of different ways to structure your superannuation, but it is not an asset that you can deal with automatically in your will.

Robyn: Okay. So, is it recommended that everyone have a binding death benefit in place to ensure their super goes to who they want it to go to? 

April: Yes, it is. It’s equally important to update it regularly so that it doesn’t lapse. Superannuation can be very tricky, and the super trustee may not, if you don’t leave a binding death benefit nomination, they may not follow who you want your, super death benefits to be paid to.

So, it’s important to consider your superannuation in your estate planning and how it might be used to avoid a claim or how it might be utilized for tax advantages.

So, for instance, payment of superannuation to a dependent like a spouse or a minor child is going to be, there’s going to be tax advantages to structure your superannuation with those payments being made to dependents.

It’s a great estate planning tool to control where your assets end up and to whom they go to.  So you’ve got different types of nominations that you can utilize. You can make a Binding Death Benefit nomination and have it paid to your legal personal representative to be paid into your estate to be dealt with in accordance with the terms of your will.

You can make one that leaves everything in your superannuation to only tax dependents or to dependents so that there are tax advantages for that. There are a lot of different types of nominations, and a lot of people tend to make binding death benefit nominations and then, not realize that they lapse three years later.

So even though it may have been how you wanted your super to be dealt with, you know, 10 or 15 years ago, if you don’t update it, that may be redundant. It may provide for a former spouse.  It may provide for people you no longer want your superannuation death benefits to go to.

And so you need to ensure that when you are doing your updating your estate planning, you need to also update your superannuation documents because like in this story, this legal battle went on for five years.

You don’t want this to, these types of disputes or court battles to play out after you pass away. 

Superannuation is one of the most valuable assets you might have, so you need to protect it the same way you would other assets. It’s governed by different, by different laws, so for instance, just one distinction with superannuation, with the definition of a de facto in superannuation law versus succession law is in succession law, a de facto needs to have been in a relationship with that person for two years to satisfy the definition of a de facto spouse to inherit.

But in superannuation law, you don’t have to have been in a relationship for two years. You could be in a short-term relationship of a few months and still be considered a de facto. And then all of your super could be paid to that person. And that’s something that terrifies people when you tell them.

Robyn: I’m sure.

April: It does. So, that’s why it’s really important for everyone to consider their superannuation and put into place a death benefit nomination.

Robyn: Yeah, look it, it really is a complex area and as you said, completely different to succession law. So always good to get the advice of an experienced estate planning solicitor.

April: Yes. Absolutely.

Robyn: Thanks for your time today, April. 

April: Thanks for having me, Robyn.

Robyn: You’ve been listening to Law Talks Here on 4CRB, which you can hear every Friday morning from 9 o’clock.