Binding death benefit nominations (BDBN) used by SMSFs have been ruled as non-lapsing and not subject to the regulations applied to nominations made within an Australian Prudential Regulation Authority-regulated fund.
The status of SMSF BDBNs was decided by the High Court of Australia today in its decision regarding the Hill vs Zuda Pty Ltd case, which centred on whether an SMSF trust deed could make a BDBN that was non-lapsing and would last longer than the three year period stipulated in the Superannuation Industry (Supervision) (SIS) Regulations.
The case reached the High Court after an appeal to the Supreme Court of Western Australia to put a time cap on a BDBN was dismissed.
SuperCentral self-managed superannuation executive consultant Michael Hallinan said the decision was handed down by the full bench of the High Court, which “unanimously held, consistently with numerous previous Supreme Court decisions and even the view of the ATO (SMSFD 2008/3), that SIS Regulation 6.17A does not apply to SMSF BDBNs”.
“Most significantly this means that members of an SMSF need not renew their binding death benefit nomination every three years,” Hallinan said.
“Also, it means that various formal requirements, such as will-like execution, which apply to BDBNs in retail funds and industry funds do not apply to SMSF BDBNs.”
The lapsing status of SMSF BDBNs has been the subject of a number of court cases conducted in different states and last year Hallinan pointed out four cases, including the Hill v Zuda Pty Ltd case heard in Western Australia, had all ruled that SMSF BDBNs sat outside the SIS regulations.
At that time, he said: “The weight of judicial case law is that the two-witness and the three-year rules do not apply to BDBNs made for SMSFs unless the trust deed of the SMSF self-possesses those rules – whether by expressly setting out those rules in the trust deed or by incorporating those rules.”
Commenting on the current ruling, he said while the High Court held that SMSF BDBNs do not need to be remade every three years, they should be examined regularly and when significant events take place in relation to the member who made the nomination.
