FACTS
The deceased son was a member of three public offer superannuation funds. The death benefits totalled just over $450,000. The estate assets otherwise were around $80,000.The son died intestate. He was survived by his parents, who were equally entitled to his estate under the intestacy rules. The parents divorced in 1979, and continue to maintain an acrimonious relationship up to the present day.
Letters of administration were applied for and granted solely to the mother on the basis of the acrimonious relationship between the parents. In other circumstances the parents would have expected to have received a joint grant.
The mother made application to each of the superannuation funds for payment of the death benefit. Initially, at least, the mother appears to have held the view that the superannuation entitlement did not form part of the estate. Her applications were in her personal capacity on the basis that she was either dependent on her son, or in an interdependency relationship with him at the date of death. Although not clear, there is no direct suggestion that it was not open to the fund trustees to make a direct payment to the mother as either a dependant, or someone who was in an interdependency relationship with the son at the date of death. In each case she made it known to the fund that she had either applied for or been granted letters of administration, but in none of the cases did she make application for payment of the death benefit to herself as legal personal representative of the estate.
Once aware of the mother’s position, the father’s solicitors began to press the mother’s solicitors to advise what efforts had been made to ascertain the superannuation entitlements, and to also indicate whether steps had been taken to maximise the estate and to advise whether the mother intended to seek any payment of the death benefits to herself personally.
The mother’s solicitors responded by affirming their view that superannuation did not form part of the estate. They further went on to indicate that “[i]t is our understanding that there is no obligation upon our client as the personal representative to make an application to have the superannuation interests held by [the son] paid to the estate.” The father’s solicitor’s countered by saying “as personal representative, your client has a fiduciary obligation to maximise the return for the estate. Clearly your client is in breach of her obligation if she has actively sought payment to herself direct in lieu of the estate.”
ISSUES
The Court considered what duties of an administrator were relevant to the case. The Court pointed out that the method of appointment of an administrator was important. It noted that the appointment of an executor involves a testator exercising testamentary choice. Accordingly, where a testator knows of a potential conflict – for example where the executor is also nominated as a beneficiary of the testator’s superannuation entitlement under a non-binding nomination – the testator is taken to accept that conflict. This is an exception to the general rule that “no one who has fiduciary duties is allowed to enter into engagements in which the fiduciary has or may have a personal interest conflicting with the interests of those whom the fiduciary is bound to protect.” The Court went on to quote the exception as described by Hope JA in Mordecai v Mordecai:That exception is where a testator or settlor, with knowledge of the facts, imposes on a trustee a duty which is inconsistent with a pre-existing interest or duty which he has in another capacity. In that situation the trustee is not thereby debarred from accepting the trust or from performing the duties which are imposed under it.The Court pointed out that in the present case the exception did not apply because the appointment of the administrator was by the Court. It went on to then set out the fiduciary duties the mother had as sole administrator of the estate. It concluded that:
In this case there was a clear conflict of duty and interest contrary to her fiduciary duties as administrator. When the applicant made application to each of the superannuation funds for the moneys to be paid to her personally rather than to the estate, she was preferring her own interest to her duty as legal personal representative to make an application for the funds to be paid to her as legal personal representative. She was in a situation of conflict which she resolved in favour of her own interests. As such she acted not only in breach of her fiduciary duty as administrator of the estate but also in breach of the duty which is given statutory expression s 52(1)(a) of the Succession Act 1981.The Court ordered that the mother account to the estate for the benefits she had personally received from the superannuation funds, with the upshot being that these benefits would then be shared equally between the parents as beneficiaries of the son’s intestate estate.
Although the decision does not make specific comment on this issue, it would appear that given the exception in Mordecai v Mordecai did not apply, then it was not open for the mother having sought and accepted her appointment as administrator of the estate, to then apply in her personal capacity for payment of the superannuation benefit. Somewhat ironically, it would seem that the acrimony between the parents, and the clear intention of the mother to apply for the superannuation benefit directly should have meant that the more appropriate course would have been for the father to have sought letters of administration solely, for the father then to have applied to the funds for payment of the benefits to the estate, and for the mother to have separately applied for payment of the benefits to herself personally. It is conceivable if that course had been adopted, the superannuation funds may have decided to pay the benefits to the mother as a dependant or, more likely, as a person who was in an interdependency relationship with the deceased.
IMPLICATIONS
Despite the decision, it would be wrong to assert that the father’s position here was fully vindicated. It must be remembered that the assertions made on behalf of the father were that the administrator (irrespective of their other interests) has a fiduciary obligation to maximise the value of the estate, with the implication being that a legal personal representative should do so irrespective of any other duties they may owe or other interests that they have which may conflict with their duties as legal personal representative. In other words, the suggestion seems to be that the duties owed as legal personal representative override all other duties and interests, and that the person must do all to ensure that the superannuation benefit is paid to the estate. Given the exception in Mordecai v Mordecai, that position is clearly not applicable in every case. Indeed, it becomes important when one considers a fairly common scenario which arises in this context.A husband and wife both prepare wills, nominating one another as executors of their respective estates, with each will establishing a testamentary discretionary trust on the death of the testator, in favour of the surviving spouse and the couples’ infant children (and there may be a wider class of potential beneficiaries of the testamentary discretionary trust). The spouses are members of public offer funds, and have not put in place binding death benefit nominations. If the assertions made by the father in the McIntosh case were correct, then the surviving spouse would need to take steps to have the entire death benefit paid to the estate. It may, however, be more appropriate and tax effective for the surviving spouse to press for payment of, and for the fund to pay that spouse, a death benefit directly, perhaps in the form of a pension. The testator made a testamentary choice to appoint their spouse as legal personal representative, and knew or ought to have known of the potential conflict for the surviving spouse, and has accepted the conflict. Consequently, the exception to the general rule applies, and it is open to the surviving spouse to seek a payment directly (albeit that it would be appropriate for the spouse to also apply for payment to the estate).
