Death benefits: a case study

I have recently read that there have been many complaints to ASIC regarding the time it took to process the payment of a death benefit. This is especially critical in the case of a ‘dependant’ who relied on financial support from the deceased.

However, the fund trustee has a statutory duty to investigate the circumstances of the deceased member, such as children or a spouse or a person in an interdependency relationship with the deceased, to ascertain who should receive all or part of the benefit and to pay it to the correct ‘dependant’.

To this end, 90 day letters of intention to claim the benefit are usually sent to potential beneficiaries to find out if they intend to make a claim on the benefit. It can only be paid to a spouse or de facto spouse; a child of any age including step-child; or a person in an interdependency relationship with the deceased.

A death certificate is also required. A valid binding death nomination eliminates problems of disputed claims and removes trustee discretion. It is a clear and unequivocal statement of what the deceased member wanted. And it can also be made to the estate and distributed according to the terms of the will.

Here’s a hypothetical of what can happen without a binding Death Nomination:

Christy was a bright young PE teacher who got her first job teaching right after her graduation. The business manager provided her with the paperwork for the school’s default super fund as soon as she started work.

She had been living with Mark for the previous 18 months so she nominated him as her preferred beneficiary (non-binding) and left it at that. After another 20 months Christy and Mark decided that their relationship was not working out, so Christy moved out and stayed with her family temporarily for a few months.

She talked to her close friend, Mi, at work and they both decided that it would be a good idea to rent a flat together. As they got along so well, they set up a joint bank account to pay for rent, food and other expenses. They also went in together for the purchase of a car.

Christy and Mi largely kept to themselves as two hard working teachers in the same school and their relationship became closer. One night on her way home from basketball practice with a group of Year 12s, Christy was tragically killed in a car crash.

The trustee, via the fund administrator, was advised of the tragic death and the Fund’s insurer was also informed. Upon the receipt of the death certificate, the insurer checked Christy’s status as a member and found that she was fully insured for a substantial insured benefit. The insurer forwarded the insured benefit to the Fund’s bank account.

The trustee began to investigate Christy’s circumstances after her untimely death and sent 90-day letters of intention to make a claim to Mark, who was named as the preferred beneficiary but was now estranged, to Christy’s mother and father, and to her sister living in England.

The trustee was told by the parents that Cristy had no other ‘dependants’ and claimed the entire benefit (super balance plus insured component) for themselves as they had transferred $10,000 for a large dental bill and $8000 for the purchase of a new car to their late daughter.

They had never approved of the relationship which developed between Mi and Christy and so did not advise that Christy and Mi lived together. Mark also made a claim on the basis that he was named as the preferred beneficiary although the couple was separated for over five years. There was no response from the sister, Emma, living in England.

The enlightened school business manager happened to mention to Mi that anyone in a personal relationship with Christy should contact the fund. Initially Mi didn’t want to as she was still in shock from the tragedy, but she decided to, and the fund asked for proof of interdependency.

Mi advised that she had been in a close personal relationship with Christy for the past six years, sent in the bank statements from the joint bank account, sent in copies of the ownership papers for the car and also more bank statements which showed that the couple was building up a deposit to buy a flat together.

Christy’s parents advised that they would make a formal complaint to AFCA (Australian Financial Complaints Authority) if the benefit was paid to Mi.

So, who should get the money?

The principle is this: the person in an interdependent relationship with the deceased is the person who suffers most from the loss of the deceased’s income and support. Therefore, Mi should get the death benefit. A valid binding death nomination in favour of Mi would have eliminated all the above problems.

Bernard O’Connor
(former NGS Super Company Secretary)
(Important information: the information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances, read the Product Disclosure Statement for any product you may be thinking of acquiring and consider seeking professional advice. Past performance is not a reliable indicator)