Australia: The High Court settles uncertainty around BDBNs for SMSFs

On 15 June 2022 the High Court handed down its decision in Hill v Zuda ¹ and in just over 6 pages unanimously determined that Regulation 6.17A of the SIS Act² does not apply to BDBNs (Binding Death Benefit Nominations) in Self-Managed Super Funds (SMSF) unless it is specifically included within the SMSF Trust Deed.

Regulation 6.17A deals with the rights and process for SMSF members to direct the Trustee of the SMSF in how to deal with their death benefit upon their death. If a member does not provide direction the Trustee is able to make the decision for them.

Regulation 6.17A also requires that a members' BDBN is renewed every 3 years.

So why was this decision heard by the High Court?

Mr Hill died with a BDBN in place which left his SMSF death benefit to his second wife.

Mr Hill's only daughter brought an application challenging the BDBN on the basis that it did not comply with Regulation 6.17A. Some questions were raised when the Western Australia Court of Appeal failed to consider the issue in depth.

The High Court granted special leave to appeal and decided that 6.17A does not apply to BDBN's in SMSF's and dismissed the appeal.

So what does this mean for SMSF members?

While the SMSF Trust Deed imposes rules regarding the requirements of a BDBN these SMSF rules are not required to comply with Regulation 6.17A, including the requirement to renew the BDBN every 3 years.

Accordingly if you are one of the million or so SMSF members across Australia this means that provided your SMSF Trust Deed and your circumstances permit a non lapsing BDBN, and don't expressly require conformance to Regulation 6.17A, you can now set and forget in the comfort of knowing your BDBN is valid.

If you have a current SMSF and BDBN we recommend that you seek advice about whether you are able to prepare a non lapsing BDBN.

Obviously you should still review your BDBN every time there is a change in your circumstances or during any estate planning process, so perhaps when you get our reminder letter every three years......

Footnote

¹ Hill v Zuda Pty Ltd [2022] HCA 21
² Regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.