Self-managed superannuation funds and binding death benefit nominations — what the High Court has to say

A recent decision of the High Court of Australia has confirmed that members of self-managed superannuation funds (SMSFs) can make binding death benefit nominations (BDBNs) which do not have to be witnessed, and do not expire or lapse, subject to the terms of the trust deed of their SMSFs.

The High Court’s decision reinforces the need for members of SMSFs and their professional advisers to ‘read the deed’ to ensure that any requirements are satisfied.

Previously, there was uncertainty as to whether SMSFs were permitted to allow their members to put in place BDBNs, and whether those BDBNs would lapse after three years.

In the case of Hill v Zuda Pty Ltd [2022] HCA 21, the High Court was required to determine whether regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (Regulation 6.17A) applies to SMSFs or not.

Regulation 6.17A is very prescriptive and establishes the requirements that apply to BDBNs, including that:

• the person or persons mentioned in the BDBN is either the legal personal representative of, or dependant of, the member of the superannuation fund
• the BDBN be in writing, signed and dated by the member, in the presence of two witnesses
• neither of the witnesses be a beneficiary of the BDBN
• the BDBN lapses within three years after the day it was signed, or if the governing rules of the fund fix a shorter period, then at the end of that period.

Zuda Pty Ltd (Zuda) is the trustee of a SMSF known as the Holly Superannuation Fund (the Fund), which
was established by a deed in 2000. Mr Sodhy and his de facto partner Ms Murray were each a member of the Fund and a director of Zuda. Ms Hill was Mr Sodhy’s daughter.

In 2011, the Fund’s trust deed was amended to insert a clause described as a ’binding death benefit nomination‘ and according to which, if either Mr Sodhy or Ms Murray died, Zuda was required to distribute the whole of the deceased member’s balance in the Fund to the surviving member.

Mr Sodhy died in 2016, and Ms Hill commenced a proceeding in the Supreme Court of Western Australia seeking a declaration that the BDBN was of no force and an injunction to stop Zuda paying out Mr Sodhy’s death benefit to Ms Murray.

The basis of Ms Hill’s application was that the BDBN incorporated into the Fund’s trust deed failed to comply with Regulation 6.17A.

The Supreme Court of Western Australia held that Regulation 6.17A had no application to a SMSF and dismissed Ms Hill’s application.

Ms Hill appealed to the Western Australia Court of Appeal, who upheld the original decision, as did the High Court. As a result, Ms Murray received Mr Sodhy’s death benefit, while Ms Hill was ordered to pay Ms Murray’s legal costs.

Conclusion

The important takeaway from the High Court’s decision in Hill v Zuda Pty Ltd is that members of SMSFs can make BDBNs which do not need to be witnessed, nor do they lapse, if the terms of their SMSF trust deed do not have these requirements. It is therefore of fundamental importance that members of SMSFs, and their professional advisers, read the SMSF’s trust deed and ensure that any BDBN that is prepared and executed satisfies the requirements contained in the deed. To ensure your BDBN complies with your SMSF trust deed, we recommend that one of our Wills, Trusts & Estates lawyers review your deed to ensure all requirements are met.

For advice on binding death benefit nominations from self managed superannuation funds, please contact our Wills, Trusts & Estates team.