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Watch out, it's not easy being the executor of an estate

I have been a football tragic since childhood and have played with, and against, the Editor of Firstlinks, Graham Hand, for many years. We currently play in a geriatric (age 60 and above) football match each week. In recent months, Graham has been the recipient of many verbal blasts from me about the frustrations I have felt as Executor of my late brother’s estate. Given that many readers of Firstlinks are likely to be asked to be an Executor at some stage in their lives, I am sharing some of my frustrations and what I would do differently if I am in this position again.

I am an actuary who has spent his working life around the superannuation industry, including consulting to major funds, and despite this, I found working with the procedures and institutions difficult.

The facts

My brother passed away on 28 May 2022 after a long illness. His partner had died over 20 years ago and he had no children. In recent years, he had simplified his financial assets so that on death, his only assets were his apartment, his superannuation benefit in the large industry fund REST, and a bank account.

For several years, I have held his Power of Attorney and he had nominated me as his Nominated Beneficiary in REST. Under his will, I was also the Executor. The final will, executed shortly before he died, stated that the superannuation benefit would meet the costs of the funeral and the balance then be distributed to 12 of his friends and relatives.

Believing myself to be financially literate, in what I thought was a fairly straightforward death benefit situation, I was happy to accept the role of an Executor. It is critical to remember, however, that superannuation does not form part of an estate unless and until the Trustee of the super fund decides to pay the benefit to the estate.

What would I do differently?

1. Nomination of Beneficiary

When my brother joined REST, he put my name on the application form as his Nominated Beneficiary. He nominated me as it was his wish that, as Executor of his estate, I would distribute the benefit to his various friends and relatives in accordance with his will. He was not familiar with superannuation law and he did not nominate me in my role as the Executor of his estate, which would have avoided most of the subsequent issues and delays in getting the benefit paid by REST.

In particular, his nomination of me as an individual was actually invalid, as superannuation benefits on death can only be paid to a legislatively-defined group of persons, including a spouse, a child, someone who is financially dependent on the deceased or in an inter-dependency relationship with the deceased, or to the deceased’s estate. However, at the time he joined REST, his occupation was postman and he was unaware of the intricacies of death benefit nominations. I now regret that I did not check and ask him to change the nomination to me as the Executor of his estate before he died.

After my brother’s death, REST was given the will and could clearly see that I was his Executor. However, to comply with what they saw as their fiduciary duty, and possibly their own deed and rules, they commenced looking for other persons who could be considered by the Trustee to receive a part, or all, of the benefit directly.

As part of this procedure, known as ‘claim staking’, they wrote to two of the beneficiaries mentioned in the will, asking if they wanted to be considered by the Trustee to receive a benefit directly from REST. If those beneficiaries of the will had agreed and REST had paid them directly, it would have caused an additional problem, as they could still have been entitled to their benefit under the will. Fortunately, neither wanted to be considered by the Trustee, but the process caused a further significant delay in paying the benefit. Again, this would have been avoided had I been nominated in my capacity as Executor of the estate.

2. Binding Nomination

I should have asked my brother to change his nomination to a Binding Death Benefit Nomination to me as Executor of his estate, as this would have removed the Trustee discretion in determining the benefit recipient. It would have resulted in a faster payment and avoided any possibility of a beneficiary of the estate being paid twice. Binding nominations are a little more complicated and in some cases are required to be renewed every three years.

If not required to be renewed, they need particular care if a person’s circumstances change, for example, remarriage. However, if it had been a Binding Nomination, I was told by REST that the Trustee would not have commenced the claim staking procedures.

3. Withdrawal before death

Before my brother died, I did consider asking him to withdraw the full benefit from REST while still alive. His benefit would then have been paid tax-free, whereas, if the benefit was paid after death there was the possibility of some tax liability. Most of his benefit, however, was from undeducted contributions (therefore not taxable further on death) and hence the tax payable would have been very small.

Naturally, I found this to be a difficult issue to raise with him in his last few months and I kept putting it off. As he had deteriorated both mentally and physically and he could no longer sign, I would have had to use my Power of Attorney to get the fund to make the payment. He had previously been close to death and pulled back each time and it was possible that he would do so again.

I incorrectly assumed that getting the death benefit paid by REST would be straightforward and reasonably quick, so I never raised the issue of withdrawal before death with him. Given the actual delay of over six months, I now believe I should have acted, although this may have resulted in other challenges and delays related to the Power of Attorney I held.

4. Setting up a bank account

The first requirement of an Executor should normally be to establish an estate bank account. I did not. Funeral costs were met by myself and my brother’s solicitor’s trust account, to be repaid later.

In late September 2022, I received a call from REST in which I confirmed my earlier request, made in a discussion with the death claims section, that the benefit be paid as an EFT to my bank account, as opposed to being payable to the estate. However, in October 2022, I received a letter from REST saying that the Trustee had decided that the death benefit must be paid to “The Estate of the late (my brother)”.

As no such bank account existed, I phoned my main bank, Macquarie, and asked if they would accept the cheque into my account as I could show that I was the Executor of the estate. They refused and said I would have to open a new account.

I spent several days talking to three banking institutions to establish an appropriate account in the name of “The Estate of the late (my brother)”. As the types of cash management accounts offered by Macquarie do not include accounts for estates, I was advised to set it up as a trust but that failed as there was no trust.

I next went to NAB, with whom I also have an account. They also advised they would not accept the cheque into my personal account. They advised that the cheque should be paid into an account at my brother’s bank, Great Southern Bank in Queensland. Great Southern Bank advised that his account had been closed and they would only re-open it if I created a new personal account for myself, which I neither need or want.

I then went back to REST asking if ‘my name as Executor for’ could be added to the cheque but was told this could only be done by challenging the Trustee decision, which would lead to a further delay of 90 days or more.

In the end, my brother’s solicitor said that his trust account could accept the cheque, so the best part of a week spent phoning multiple banks and REST, hanging on for up to 30 minutes for each call, was a total waste of time.

What I was not told by the banks at the time, but found out later, was that I should have asked for the account to be set up in the name of ‘The Executor of the Estate of the late (my brother)”.

Dealing with REST

1. Information requirements

I thought some of REST’s requirements were excessive. For example, I was asked for the death certificates of our parents. Our father died in 1957 and our mother in 2002, both in Ireland. My brother was 77 when he died and our parents, if alive, would have been 108 and 110. I have never seen their death certificates.

I was told by REST that when someone dies without a spouse or children, they may leave their benefit to their parents. Despite the fact that our long-dead parents, not being financially dependent on my brother, would not have been valid recipients of his benefit, I was required to draw up and deliver to REST a Statutory Declaration stating that our parents were no longer alive.

2. Payment of benefit

The letter I received in October 2022 stated that objections to the Trustee decision could be made within 28 days. If there were no objections then “… the benefit will be paid in accordance with the above proposed distribution after 15 November 2022”. I asked if I could collect the cheque directly from REST after that date but was told the cheque would be posted.

There were no objections to the Trustee decision and therefore I was expecting to receive the cheque in the mail in the days following 15 November 2022. Given this, I was perhaps over-enthusiastic in writing to all of his beneficiaries advising that payment should be made late November and asking for details of their bank accounts.

Some of his beneficiaries are quite old and are not well off and are on the age pension. They were very much looking forward to receiving their bequest. I was contacted by some of them when their benefit did not arrive as I had advised.

I checked the mail every day after 15 November but no cheque arrived. I eventually contacted the fund on 24 November and was told the cheque had been drawn on that day. I was told it could take another 5-10 business days before it would be posted but it would then be sent by Express Post.

Again, I asked if I could collect it but was told this is not allowed, even if I provided photo ID. This would be more secure than putting a large cheque in the mail, as well as avoiding further delays. I do not know why REST insisted on a posted cheque when I wanted an EFT. The cheque eventually arrived in the mail on 9 December 2022, dated 2 December 2022.

I realise that some death claims are complicated with divorces, divided families, competing claimants etc. In those cases, the Trustee needs to make careful enquiries to determine the proper recipient. However, in the case of my brother’s estate, it was a straightforward claim, but it took over six months from the date of death to receiving the payment. With the knowledge I have now, however, perhaps some of the problems and delays could have been avoided.

I hope my experience may help others to avoid similar problems in the future.

SMSF versus Industry Funds

There have been some articles in Firstlinks recently on transferring superannuation from a SMSF to a public offer fund as the members age and find it is becoming more difficult to manage their own fund.

The decision to close an SMSF and transfer to a public offer fund is a complicated one involving many issues such as compliance, investments, loss of control, governance, costs etc. Also, the time and effort to close an SMSF can be excessive without the help of someone who has gone through the process before. Although it is not the most important issue, the passing of decision-making power on the recipients of death benefits from the SMSF trustee to the trustee of the public offer fund needs to be one of the issues considered.

REST is now reviewing its procedures

Following the distribution of the estate, I provided detailed feedback to REST on my experience. I received a call appreciating my comments and promising a thorough review of their death benefit procedures.

 

Doug Drysdale is an executive at PFS Consulting, an actuarial and risk consultancy. This article is general information and does not consider the circumstances of any other person.

 

31 Comments
John P
February 03, 2023

Interesting article on often a very difficult issue, Doug
(A bit of time has past since we shared adjoining offices back in the early '90s!)

Meg Heffron
January 30, 2023

Great article Doug - I've only done this once and it was definitely a lot harder than I expected (and is still going - 2 years on).

Has anyone ever used this service : https://deathnotification.gov.au/ I don't think it would have solved the problems raised in this article but it does look like a step in the right direction.

This is one area where an SMSF (with a corporate trustee) can be a help rather than a hindrance when your partner (and fellow member / director) dies. The survivor has plenty of time to wind up the fund if they choose to do so but at least they can deal with the payment of death benefits, continuation (or commencement) of pensions etc very quickly.

AlanB
January 29, 2023

I read this most honest personal account with a mixture of alarm and mounting indignation. What a complex maze superannuation has become. Superannuation has a purpose throughout life in building up retirement savings, but has no purpose towards the end of life, or after life. Our final years and the memories we bequeath of a life lived should not be made deliberately more painful by the complexities and inflexibilities of superannuation regulations. To simplify affairs towards the end of life, terminate the REST fund and/or SMSF moving all savings into a simple bank account to facilitate easy withdrawals and even early distributions to beneficiaries, retaining sufficient funds for anticipated ongoing expenses. As touched on in the article about what to do differently: #3 'Withdrawal before death'.

David C
January 29, 2023

I quite agree that anyone in the terminal phase of an illness should do this. It simplifies the whole process, and carries tax advantages for many single member SMSFs which have to be cashed out anyway after death. Current interest rates on savings accounts and term deposits are now reasonable.

Gael
January 29, 2023

We have a new Government that could be open to listening re these Industry Funds in particular.
It is time to lobby the Govt. for simplification and particularly allowing beneficiaries to determine who they wish to inherit their assets held under a superannuation fund.

Adviser
January 30, 2023

Unfortunately, this would be, as governments like to phrase them, a "cost" of lost death benefits tax. There is no incentive for them to change the system.

Chris Bartlett
January 29, 2023

Thank you. Very accurate and informative. I work as a solicitor in the legal industry. The delays, unwillingness to help and promises not kept are all hallmarks of the REST group (and others). Their so called “processes” work to the detriment of the deceased’s families and beneficiaries, many of whom at a time of death are in need, a need that frequently a deceased hoped to provide for without obstruction and obfuscation.

Len Williams
January 28, 2023

Len W
Thanks Doug for an informative article.
As the executor of an estate that was, I thought, formalized some four years ago, I am now dealing with the Remediation of Fees for Financial Advice.
Even though your dealing with some of the same entities as previously, you still have to provide the certified documents all over again.
I also find it a mystery as to why the financial entity advises you of repayment of fees in the case of a super account, but directs the payment to the Trustee who then sends it the the ATO.
My interaction with the ATO to have the payment sent to me is nothing short of horrendous, and confirms why some people I know didn't bother if it was only a small payment.

Paul B
January 27, 2023

Thanks Doug for the most interesting and informative article and also to all of you with your additional comments.
Maybe we should re-phrase the old adage to “In this world nothing can be said to be certain, except death, taxes and Executor stress!”

MalW
January 27, 2023

This illustrates that it can be worthwhile using the services of experts (Adviser and Solicitor) beforehand and afterwards.

David
January 27, 2023

Nominating superannuation beneficiaries correctly shouldn't be rocket science for anyone. Your fund should have ample information available as to how it's done and what the options are. And should prompt you to do it at least when you open the account and then periodically thereafter, in some way, shape or form, if you haven't.

If this escapes people then it's largely because of the fingers in ears "la la la la la" approach most have to their super - despite the often heroic attempts :) of super funds (usually) to get people to take an interest and care, most never do. Yet funds continually get criticised over "customer engagement" - but that's another rant.

You cannot (or should not be able to) nominate "Person X as the Executor of My Estate" as a beneficiary - the arrangements you make, and may change from time to time, as to the disposal of your estate upon your undoubtedly tragic demise are not the business of superannuation. You either leave it to one of the well-documented 4 types of beneficiaries: spouse, child, financial dependant, and independency relationship - where you name the person or persons - or you nominate your "Legal Personal Representative" (code for your estate) where you CANNOT name a person.

Who that person is, is the business of your will, not your super fund.

PETER
January 29, 2023

Great reply David. The author made too many rookie errors.

Ruth
February 01, 2023

I agree David and Peter; the fund does not know who potential beneficiaries are and has to go through a lengthy process to find out; should have been left to LPR. Also, makes no sense to reference superannuation in a will to me as once it is paid to the estate its identity as superannuation no longer exists.

Frank
January 27, 2023

Most financial advisers are aware of issues like those raised in this article and would have advised on the nominations being set up correctly avoiding all these issues. This is the value of a good financial adviser. Most of the problems were caused because the nomination itself was not valid and not done properly. Having said that, industry super funds cause unnecessary obstacles - retail funds are much better with handling these issues. Most SMSF trustees do not consider these issues at all unless raised by a financial adviser. Some accountants raise these issues but most leave it to the trustees who have no idea.

Jack
January 27, 2023

An important point is that industry super funds are subject to the Superannuation Complaints Tribunal and the majority of the complaints they deal with, concern the payment of death benefits. And because super death benefits are not covered by the provisions of the will, unless that is the specific instruction of the deceased, the distribution of the death benefit is often left to the discretion of the trustee of the super fund and that decision may then be subject to a complaint before the Tribunal. That may explain their need for extra caution, along with their natural reluctance to let go of the money.

Of course the same rules apply to an SMSF, but the Tribunal has no jurisdiction over an SMSF. That is why the trustees of an SMSF must have their death benefit nominations really clear and be very sure who will assume the role of trustees on their death. Without a trustee the fund cannot operate.

The solution may be to make sure your trust deed includes your executor as a trustee on your death.

June
January 27, 2023

Honoring the wishes of the deceased can be a minefield for Executors. Even when a detailed and properly witnessed letter was left with our friends will, the Super Fund Trustees ignored his expess wish regarding the distribution of his super because two of the beneficiaries were under 18 years of age. They used their power to award the money to a parent instead, with no recourse to go into Trust for the two minors.

Jack
January 27, 2023

Thank you June for emphasising my point. The super fund trustee is not, and cannot be, bound by the will. The trustee is bound by a binding death nomination (BDN) and that document has to be legal and current, otherwise the trustee must decide who receives the death benefit. Only certain people can receive a death benefit directly from the fund and not all of them receive it tax-free. Grandchildren cannot be beneficiaries of super death benefits.
If you want your 16 year old grandchild to receive your super death benefit, your BDN should specify that the death benefit is paid to your estate, and then your executor of your will can direct it to your grandchild.

margaret gillett
January 27, 2023

I have just been through a similar scenario and everything with financial institutions, ATO etc takes up to 2 months and it was worth having the solicitor set up a bank account to EFT from the estate and also deposit cheques. A number of financial institutions only do cheques. Again this was a fairly uncomplicated will. I am leaving my executor some money before I die for all the effort involved.







David Boyd
January 27, 2023

Thanks for the original article and particularly the suggestion of establishing a bank account in the name of the “Executor of the estate of the late …”. From experience an Enduring Power of Attorney ceases immediately upon death. I have processed 4 estates over 30 years and note the changes. 1. The survivor of a joint tenancy takes ownership upon the death of the deceased and receipt of the death certificate. Previously the survivor could proceed by filling out a prescribed Notice of Death form and after presenting it for stamping at the Office of State Revenue, both documents could be presented to the Land Titles Office with the Certificate(s) of Title to change the ownership. Certificates of Title no longer exist. Now the only means of changing ownership is through a bank, authorised solicitor or conveyancer. 2. The probate process is no longer initiated by advertising in a newspaper. It is now initiated on line through the Supreme Court and as such public notification is less transparent. 3. In winding up an estate of a deceased who lived in a retirement village where tenure was a 99 year lease, it was far more economical to surrender the lease rather than selling the lease to an incoming tenant despite the extras that the new tenant may gain eg extra car spaces or storage facilities. Selling a lease tenure involves paying stamp duty by the incoming tenant on the transfer whereas securing a new lease doesn’t incur stamp duty. 4. It would also be nice if an informed person could write a comparison in resolving an estate between the government agency and a solicitor and a comparison of costs.

Aro
January 27, 2023

Reading this story and hearing from others with similar experiences, It made me think think of the following.

Why cannot the banks, super funds, govt. agencies who have deal with deceased estates have a checklist of information they require from the executors of wills to make it easier for all concerned. This will reduce a lot of the time wasted in processing and executing the will.

Aussie HIFIRE
January 27, 2023

I'm sympathetic to the idea that our estate planning system is fairly complex, although that also helps some people as well.

Unfortunately though many of the issues raised here seem like unforced errors from the deceased and the executor rather than that of the super fund.

Having an invalid beneficiary, that had potentially expired, to the person as an individual rather than as the executor of the estate, and then not setting up a bank account for the estate are not the fault of the super fund. And whilst I can't speak to what this particular super fund sends members, most of the ones I'm aware of do make it clear who can be beneficiaries and that the nomination needs to be renewed etc.

Hopefully this article helps others avoid making some of the same mistakes.

Peter Londregan
January 26, 2023

Thanks Doug, great article covering a number of important and vexing issues. I am also an actuary and I thought my knowledge and experience would make estate matters a lot easier. Wrong assumption! I have been executor of three estates (my mother, father-in-law and step mother-in-law). In addition my son died intestate but I was heavily involved in sorting everything out and it was quite complicated. Make a will! I had trouble with a bank which quibbled with a power of attorney made by my step mother-in-law and they made me wait for 45 minutes or so while they phoned their legal department every time I wanted to do a transaction in person on the account. My last estate work was about ten years ago and was not as bad as Doug's experience.

Also, when you open a bank account in the name of the "Estate of the (name of deceased person)" the executor needs to get a Tax File Number for that estate. Having that bank account makes things a lot easier. The executor is also responsible for lodging tax return(s) for the estate. That can be a bit of a process. It can be outsourced, but at extra costs.

Cam
January 26, 2023

As family ails and dies we all stumble through the same process, reading and learning what to do and making decisions based sometimes on incomplete information or not knowing of consequences. There's advisers out there, but that costs money and like every profession there's some great ones and some that are not.
A Government and/or Super Fund set of facts sheets could well help. Super funds could send it generically to members at age 50, 55, etc.
The catch for REST is some people try and get money from a deceased relative all to themselves. REST won't know if you're one of the honest people or not. SMSFs can be easier, but should follow the same process. As a SMSF auditor a coupe of years ago I was told the family was a simple mum, dad and 2 kids, but later the accountant found out the dad had a previous wife and kids. Not following the procedures would often be OK, but for this case could see the Trustee, auditor and maybe the accountant being sued by this other family.
The tax on death in super is a very difficult topic to raise with the dying person. We avoid the conversation. I've seen 6 figure tax payments, but expect that if people could go back they'd still struggle to discuss things.

Stella Young
January 26, 2023

I was executor of my father's simple estate (banks accounts plus aged care deposit).
Not being able to use my power of attorney after he died caught me by surprise, but CBA were very helpful. I was told that they would pay for the funeral if I presented the invoice to them. They (eventually) set up an estate bank account. Their staff helped me with increased daily limits to pay the beneficiaries.
Main problem was waiting (over six months) for probate because we only had copies of Dad's will, not the original. I couldn't see why they procrastinated when what he specified in the will was exactly what the intestacy laws would have delivered (one of my brothers had predeceased Dad). Grrr!
If you are an executor, make sure you have the original of the will.
Process took over nine months in all.

F Rubens
January 26, 2023

Thank you for your alerts regarding payout of Superannuation of a Deceased Estate.
I also had incredible troubles when my de facto partner of more than 45 years died due to complications after surgery.
He had two superannuation funds both of them with myself as the Beneficiary. One was quickly paid out. I was also the Beneficiary and Executor of the Estate.
Caresuper created difficulties. They wrote to my independent adult children asking for permission for me to receive the benefit. Fair enough, despite my declaration they were independent. However they also told them the amount of the benefit which I think was totally unnecessary and violated my privacy. What if my children had been drug addicts, gamblers or dishonest etc?
I also had to provide proof of my relationship. They even asked me if we had sex! I didn’t answer this question but said we had children with his surname, as already stated on my application form. We had a common address, a business and private bank accounts registered in both names, but, despite giving all relevant documents , they still required a declaration from our accountant.
This process was not as arduous as yours but maybe the unnecessary complications relate to the fund trying to delay the payout. Maybe they don’t have available cash at hand or they want to delay until the market rises so their annual stats are better?
Of course I wrote to complain but did not receive an adequate explanation.

Old but Sane
January 26, 2023

A similar story about a different person was on either the ABC or The Guardian this week, especially regarding the documents super funds require. That story had a spouse as reversionary super beneficiary and fund stopped pension payments for months,requiring all sorts of documents/forms, etc, so she had very little to live on.

Even where things are really simple, like my Dad, only asset was jointly owned house, no probate, just changing household bills into one name was a nightmare. We gave up in the end on some and had to redo title change as it went over end of June and fee increased!! Bank even wanted copy of will to change joint account when it is not even part of the estate.

Likewise when doing your will include a payment to the executor for their services (at least $20000).

Pete Latham
January 26, 2023

My wife was required to act as the Executor for her sister’s estate (and her 3 non adult children) several years ago and was complemented by our solicitor at successfully navigating at the first attempt her executor duties which included dealing with 2 major industry superannuation funds. This would seem to be the exception. The very laws which were originally designed to protect our privacy now act as a screen behind which institutions and their employees can defend their decision to delay, defer or officiously obstruct the process and the transfer of entitlements ; this has the effect of significantly adding to and magnifying the workload of the executor. At a time of stress and grief, those who are left to “sort out” the estate and negotiate the process do not need additional obstacles unnecessarily placed in their way.

David McDonald
January 26, 2023

I share Doug's pain having recently been executor for what I thought was my mother's very simple estate.
Despite having a power of attorney as well as being executor I was told by CBA that they "no longer accept powers of attorney" so I could not access my mum's bank account.
I also had to go through the painful process of setting up "an estate of..." bank account.
After applying for and receiving probate CBA then told me they wouldn't release the money as there was an error in the bank acccount number. I explained that they had the will, probate and knew all the accounts she held but no had to go back and re-do probate. I did ask if there was an additional account we did not know about did that mean they wouldn't release it..........the bank employee could only say "above my pay grade"

Colin Edwards
January 26, 2023

No longer accept powers of attorney?? I'd take that to the Australian Financial Complaints Authority

Gael
January 27, 2023

Powers of attorney die with the person they are covering.
The Executor then takes over.
It is a legal matter.

Rob
January 26, 2023

I suspect that what the CBA was really saying was that, "the EPOA was no longer valid as the appointer is deceased", which is entirely correct - the EPOA ceases to exist at that point.

 

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