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Self Managed Super Fund (SMSF) Article
Super Fund Complaints
By Tony Negline.
This article may be out of date.
17th September 2008
The Superannuation Complaints Tribunal has been around since 1994 and is designed to provide super fund beneficiaries with a free mechanism to seek redress from unfair or unreasonable decisions by super fund trustees.
From the time it first began in 1994 most disputes that the SCT has had to deal with have involved death benefit payments. For example in the 2006/07 year the SCT received 1,200 complaints which the law allows it to examine. More than 30% of these involved death benefit payments.
When a super fund member dies, the trustees of the fund have to decide who is going to receive the death benefit. In some cases a deceased member might have validly completed a Binding Death Benefit Nomination which the trustees are obliged to follow.
In other cases the member has not made any distribution nomination or invalidly completed one. When either of these events occurs most super fund trust deeds will give the trustee the power to decide who will receive a death benefit.
Ordinarily the trustees will have to follow a process where they seek to identify possible dependants of the deceased. A trustee will then ask potential beneficiaries to say why they should receive some or all of the deceased's super benefit. After reviewing all these submissions, a trustee will then make an interim distribution decision. All potential beneficiaries are notified and given the chance to make a second submission stating why the trustee's interim decision should stand or should be amended. After examining this new information the trustee will make a final decision. Beneficiaries of non-Self Managed Super Funds who are not happy with this decision may complain to the SCT.
One particular case SCT (D07-088) involved a woman who died in July 2005. The SCT released its findings in relation to the case in December 2007.
The deceased married her husband in February 1991. In March 2004 they separated. Not long after she contracted terminal cancer. Prior to her death formal divorce proceedings had not been commenced. Sometime between the marriage separation and death the deceased went to live with her mother. In the final months of her life the deceased's sister lived with her to assist with care.
In relation to her super fund, many years ago the Deceased Member had nominated her ex-husband as the preferred beneficiary to receive 100% of her benefit in the event of death. The solicitors for the deceased estate said that in July 2004 the deceased had completed a Change of Membership Details form in which she wrote "See Will" as her preferred beneficiary. The super fund's trustee advised that they never received this document.
In August 2004 her final Will was drawn up which said, "IT IS MY EXPRESS WISH that I do not want to benefit my husband in this my Will as a result of the breakdown of our marriage."
When the woman died, the super fund trustee decided that she had two dependants – her ex-husband because he was still technically her spouse and her mother because she was in what is called an interdependency relationship.
In February 2006, the trustee initially decided that 50% of the death benefit should be paid to her mother and the remainder to her ex-husband. The ex-husband did not like this decision and complained.
Next in May 2006 the trustee decided that they would pay the benefit to the deceased's estate but the trustees of that estate said that the "estate had been wound up and requested that the Trustee distribute the benefit to the claimants directly".
In November 2006 the trustee finally decided that the benefit should be paid to her mother.
The ex-husband was not happy with this decision and immediately complained to the Super Complaints Tribunal.
After carefully examining all the evidence the SCT decided that the deceased's mother was not a dependant of the deceased and therefore not eligible to receive the death benefit. The deceased's ex-husband however was a dependant and was therefore the only eligible beneficiary of the death benefit.
Two and a half years after death the benefit was finally paid out. How would a family on a monthly mortgage and credit cycle survive? In most cases they might not survive much longer than 3 months after regular income ceases.This death benefit was $5,510. It is unclear why such a modest sum of money was fought over so keenly. Imagine the dramatics that would have occurred over a much larger sum of money.
In its 2007 Annual Report the SCT said that in its view:
- Most complaints about death benefit distributions involve no valid binding nomination in place (our emphasis)
- Many involve adult children from prior relationships disputing distributions to the surviving spouse
- When assessing a claim the tribunal looks to see if a claimant had a legal or moral right to look for financial support in retirement had member not died
- Tribunal then looks at preferred beneficiary forms, the circumstances of relationships and financial needs of the parties
- In general there is a lack of understanding amongst super fund members (and their legal advisers) about the interaction of super and wills
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