The recent High Court decision of Hill v Zuda Pty Ltd has provided clarity on whether self-managed super fund (SMSFs) can make binding death benefit nominations (BDBNs) last longer than 3 years.
The High Court considered whether regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) applied to BDBNs prepared for SMSFs.
Regulation 6.17A sets out the requirements for a member to provide a notice as to the payment of death benefits. These requirements include:
- the nomination must be in writing;
- it must be signed and dated by the member in the presence of 2 independent adult witnesses; and
- must contain a declaration signed and dated by the witnesses stating that the notice was signed by the member in their presence.
The regulations also state that the notice expires 3 years after the day it was first signed, or last confirmed or amended by the member (or such shorter period provided by the governing rules).
Hill v Zuda Pty Ltd
Zuda Pty Ltd (Zuda) was the trustee of a SMSF known as the Holly Superannuation Fund. Mr Sodhy and Ms Murray were each a member of the Fund and a director of Zuda. The relevant trust deed for the Fund was amended in 2011 to insert a clause described as a ‘binding death benefit nomination’, according to which, if either member of the Fund died, Zuda was required to distribute the whole of the deceased member’s balance in the Fund to the surviving member. Mr Sodhy died on 22 November 2016.
Ms Hill, the only child of Mr Sodhy, commenced a proceeding in the Supreme Court of Western Australia, arguing that the binding death benefit nomination clause was invalid and therefore ineffective on the basis that it did not comply with regulation 6.17A. Ms Hill submitted that the BDBN was of no force and effect because the BDBN was made more than three years before Mr Sodhy’s death.
The Supreme Court of Western Australia dismissed the proceeding on the basis that regulation 6.17A did not apply to the Fund as an SMSF. The Court of Appeal upheld this decision. Ms Hill was granted special leave to have the High Court hear an appeal on the decision.
High Court Decision
On 15 June 2022, the High Court unanimously dismissed Ms Hill’s appeal. The High Court held that regulation 6.17A, properly construed, does not apply to BDBNs prepared for SMSFs. This means that members can rely upon the wording of the SMSF’s trust deed to determine whether an SMSF can have BDBNs, and how they may operate.
The decision in Hill v Zuda Pty Ltd confirms that BDBNs in SMSFs can last more than three years, subject to the SMSF’s trust deed. It also confirms that the formal requirements of signing the BDBN does not apply to SMSF BDBNs. The rules for making BDBNs in SMSFs are imposed by the trust deed and therefore it is crucial that a SMSF member who makes a BDBN reads the trust deed to ensure that the BDBN complies with the requirements set out in the trust deed.
~ with Philippa Thorne, Graduate-at-Law