The use of a binding death benefit nomination (BDBN) may help prevent legal challenges relating to perceived conflicts of interest where a beneficiary also administers the deceased estate, according to a superannuation lawyer.
Sladen Legal principal Phil Broderick noted several court cases had made it clear that if a potential beneficiary is also an executor of an estate and makes a claim for death benefits, they are likely to be found in a position of conflict of interest and will have to disgorge any benefits paid.
As such, Broderick advised preparing a BDBN well in advance to mitigate these legal risks.
“One option is to do a BDBN now because the problem with all of these [conflict of interest cases] is that there’s trustee discretion. The problem with trustee discretion is that the beneficiaries have to make a claim and they’re making a claim in a position of conflict,” he told attendees of a presentation at The Tax Institute’s recent Super Intensive.
“Whereas if the trustee is obligated to pay the death benefits to a person who might be in conflict or not, it doesn’t matter because there’s nothing for them to actually make a claim on behalf of the estate because the BDBN says that they get the death benefits personally. [It’s] important that be put in place if it’s appropriate.”
While the use of a BDBN was often the simplest way to avoid conflict of interest issues, he also advised inserting a clause into the respective will that specifically recognises the ability of beneficiaries to make the claim.
He added this course of action is the safest approach because if the BDBN is revoked or proves to be defective, trustees may still be exposed to legal risks when it comes to claiming death benefits on the estate.
“As shown in Brine v Carter [2015], you can consent or assent to conflicts of interest. So if you’re making a will and you want your surviving spouse or any of your beneficiaries who are also going to be the executor of your estate [to receive benefits], authorise that conflict,” he noted.
“We’ve been putting those sort of clauses in our wills for years because of this issue. Don’t do it for everyone because you want to make sure that the particular executor can make a claim personally.
“Generally [the clause] is going to be in the will and the clause could say something along the lines of: ‘It’s my wish that my super benefits be paid to my spouse and I authorise my spouse to make a claim for those super benefits on her own behalf, or his own behalf, or on behalf of the estate, or both.’”
“And then I would put a clause underneath saying: ‘I authorise, if my spouse or children are executors, for them to make a claim personally on behalf of the estate and I authorise them to do that notwithstanding they’re in a position of conflict of interest.’”