WHAT COULD GO WRONG?
Dr Karl Kruszelnicki points out that the true and original form of Murphy’s Law is: "If there are two or more ways to do something and one of those results in a catastrophe, then someone will do it that way". But Dr Karl also points out that it is a message of hope: “Not only does it warn you about what things can go wrong, it’ll even tell you how you can work around them, so as to make it impossible for Murphy’s Law to actually happen.”
Superannuation death benefits so often lend themselves to the application of Murphy’s Law. And yet there is hope also.
WHY MURPHY’S LAW MIGHT APPLY
Fund trustees almost invariably are given a discretion to pay a death benefit either to the legal personal representative of the member’s estate, or to the member’s dependants (or a combination). Members who think trustees will “do the right thing” need to consider whether there is a way for the payment to be made which would result in a catastrophe.
The recent decision in Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited highlights the issue. Mr Mandie was a member of a superannuation fund. He made no nomination in relation to his death benefit. His three adult children survived him.
He had previously entered into a settlement with his 2 sons, where it was agreed that neither son would have any further rights against Mr Mandie’s estate. His daughter was the main beneficiary of his estate.
The daughter and the executors of the estate sought unsuccessfully to persuade the trustee to pay the benefit to the legal personal representatives of the estate. When the trustee of the fund determined to pay the death benefit equally to the 3 children, the daughter and executors asked the Superannuation Complaints Tribunal to review the trustee’s decision. When the SCT application was unsuccessful they appealed to the Federal Court. Again this approach was unsuccessful, the Federal Court finding that the trustee’s decision was fair and reasonable.
CAN CATASTROPHES BE AVOIDED?
Did a “catastrophe” arise? That will depend on one’s perspective. A more appropriate question would be: Is there a way to prevent Murphy’s Law applying in similar circumstances? The answer is to remove the discretion from the trustee. And the way to do that is to use Binding Death Benefit Nominations. BDBNs are not the panacea and advisers should not blindly and steadfastly insist that BDBNs be used in every circumstance. Advisers should make clients aware that BDBNs can be an effective estate planning tool where certainty is required.
The real lesson of the Stock decision is for fund members and advisers to understand all the potential outcomes, and consider to what extent one or more of those might be considered catastrophic – at least from the member’s perspective. If a catastrophic outcome could arise, then take steps to eliminate it.