Burgess v Burgess [2018] WASC 279
This case examines the inherent conflict between an Administrator’s duty to the estate with a personal interest as a dependent.
This is a case that could have been avoided if the deceased did:
Make a valid Will
His family would not have had to deal with an intestacy situation as it is likely he would have explicitly provided for his surviving wife to be the executor of his Will and to inherit his estate; and
Make binding nominations
The trustees of the four superannuation funds in which he held entitlements (including any life benefits) would likely have been bound to distribute the funds on a 100% basis to his widow (rather than his estate) instead of leaving the distribution wholly at the trustees’ discretion.
Unfortunately, neither of these two events happened which led to the problem the Court was asked to resolve in this case.
Intestacy and the consequences
At the time of his death the deceased had a dependent wife (Mrs Burgess) and two sons (then aged 11 and 7). The widowed Mrs Burgess had sole responsibility to take care of the children having to significantly increase her hours as a child care educator to 70-75 per week.
Because there was no Will, under the intestacy laws in Western Australia (section 14 of the Administration Act 1903) the proceeds of the deceased’s estate (Estate) were to be distributed on the basis that the first portion of $50,000 (plus some interest) went to Mrs Burgess and then the balance was divided equally with a 1/3rd to Mrs Burgess and 2/3rd to the children equally.
Mrs Burgess applied for and became the Administrator of the Estate at 27 June 2016.
The deceased had few assets but held interests in four different superannuation funds which had associated life insurance policies. Consequently, on his death the superannuation funds received substantial life insurance policy proceeds.
As a matter of law, the entitlements under the superannuation funds do not form part of the assets of the Estate. In the absence of a valid binding nomination (as was the case here) the fund trustee had the discretion as to who to pay the superannuation funds proceeds to. Generally, to eligible persons being the deceased’s dependents. The Estate cannot compel payment of the superannuation fund proceeds to it.
In May 2015 two of the deceased’s superannuation funds paid out the proceeds directly to Mrs Burgess as an eligible dependent. One before she was appointed the Administrator. The second (REST) paid her after her appointment as Administrator. A third fund paid the proceeds into the Estate (so was not relevant to the case). A fourth fund (AMP) would not exercise its discretion pending the outcome of the case.
Issue “Widow versus Administrator”.
It needs to be said that at no time was Mrs Burgess’ credibility in doubt nor was there any misappropriation of the superannuation payment funds she received. The Court recognised that she had acted in the best interests of the children by establishing trusts for the children with the Public Trustee.
The issue was - What is the likely conflict of interest between the position of Mrs Burgess as the widow asking that the deceased’s superannuation funds be paid to her as his dependent in contrast to the fiduciary duties she is bound by as Administrator of the Estate.
She asked the Court to resolve whether she must as Administrator call upon herself personally to repay and account to the Estate for all funds she had personally received and used from the relevant superannuation funds.
Decision
The Court decided that Mrs Burgess had not breached her fiduciary duty when she applied for and was paid the superannuation funds before she was appointed Administrator of the Estate.
However, the difficulty was where she was personally paid superannuation funds from REST about 6 months after she was appointed as Administrator. It was said that this was clearly a conflict of interest in this circumstance, between her fiduciary duty as trustee of the Estate and her personal interest as a surviving dependent personally claiming the deceased’s superannuation funds.
The Court said Mrs Burgess’ duty as trustee required her to apply (and not just disclose to the superannuation fund any competing interests) as Administrator for the estate to receive the superannuation funds to the exclusion of all other claimants (including herself). In short as Administrator she must be the Estates “champion” and “exclusively” advance the interests of the Estate.
This duty meant that Mrs Burgess as Administrator should in the future apply to AMP to pay the AMP superannuation funds to the Estate.
Consequently, Mrs Burgess was required to account to the Estate for the REST funds she received. As the funds had been used the result was messy for the family. Though regrettable the Court considered that the wider trustee integrity policy was of vital importance and extended beyond the regrettable facts of the case.
Conclusion
This case is an example of why a person should make a valid Will. The difficult position Mrs Burgess found herself in could have been avoided by her late husband making a valid Will appointing her executor and sole beneficiary of his Estate and also making binding nominations for her to directly be paid the superannuation funds proceeds (or because he had a valid Will making a binding nomination for the superannuation funds proceeds to be paid into his Estate).
Instead Mrs Burgess was left in the unfortunate position of not only having to support her children in difficult financial and emotional circumstances but also having to deal with the (avoidable) consequences of her husband dying intestate.
Author: Elizabeth Mitchell