Super death benefit claims where there is no binding nomination

The governing rules of most superannuation funds allow a member to nominate who receives their benefits if they die (known as death benefits).

In all circumstances where there is no valid binding nomination at the date of the member’s death, the governing rules of the superannuation fund provide the mechanism for deciding who receives the death benefits. Except for statutory superannuation funds where legislation determines who receives the death benefit, the governing rules provide that the trustee of the fund determines who receives the death benefit in the absence of a binding nomination.

When a nomination is invalid at the time of death:
A nomination may lack formal validity because it has not been executed by the member in the manner required by the governing rules. It may not be binding because the nomination has lapsed, such as where it was made more than three years before the member’s death. There may be other reasons why a nomination is not binding.

Who is eligible to receive a death benefit?
Where there is no binding nomination at the date of the member’s death, the fund’s governing rules will often adopt the standard for payment of the death benefit contained in Superannuation Industry (Supervision) Regulations, cl 6.22, which confers a discretion on the trustee of the superannuation fund to pay the member’s death benefit in favour of the member’s legal personal representative and/or the member’s dependants.

Who is a dependant?
Whether a person is a ‘dependant’ starts with considering what it means subject to the governing rules of the superannuation fund and the law at the date of the member’s death.

The definition of a ‘dependant’ under the governing rules may differ from the definition in the Superannuation Industry (Supervision) Act (‘SIS Act’).

How is dependency established?
It is relatively straightforward to establish that someone is de jure spouse (i.e. married) or natural child of a deceased member by providing certificate evidence such as a marriage certificate and birth certificate. However, it is not as easy to prove a de facto relationship, an interdependency relationship, or total or partial dependency on the deceased member. Other evidence, relating to the nature of the relationship, living arrangements, financial support provided and received, type and extent of domestic support and personal care provided and received, and the like, may be needed.

What is the claim-staking process?
The trustee firstly identifies who is eligible to receive the member’s death benefit. This may not be a speedy process as the trustee allows sufficient time for claimers to submit (and substantiate) eligibility for the benefit. After identifying the eligible claimants, the trustee then eliminates some claimants by considering the purpose for the member having superannuation.

That purpose is to provide for those who would reasonably expect to continue to receive financial support from the member if they had lived. In determining the claimants who should receive the death benefit - a narrower category than those who may be eligible to receive it – the trustee considers whether any of them were financial dependants of the member. If so, then they will be preferred beneficiaries, which means the member’s legal personal representative is very unlikely to receive anything.

The third step is for the trustee to determine the amount of the death benefit paid to each claimant.

After the trustee makes a preliminary determination, it normally allows the claimants an opportunity to make further submissions. A trustee may make more than one preliminary decision before making a final decision.

How does a claimant challenge a trustee’s decision? There are two legal options available. If it can be established that the trustee failed to discharge its fiduciary duties in relation to the claim, the claimant can apply to a court for a declaration to that effect.

If it can be established that the decision was unfair or unreasonable, the alternative and most common approach, is to apply to the Australian Financial Complaints Authority (‘AFCA’).

AFCA can only deal with complaints relating to decisions by the trustee of a regulated superannuation fund (which does not apply to a SMSF).

A complaint to the AFCA must be made within 28 days of notice of the trustee’s decision and the rights to object.

This article contains general advice only, please contact your legal representative for further information in relation to your specific circumstances.

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