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Death benefits

Trust deed has final say on BDBN timeframes

SMSF BDBN deed

The Hill v Zuda case means SMSFs can make a BDBN last indefinitely, but only where a trust deed does not constrain it in any way.

An SMSF binding death benefit nomination (BDBN) can last indefinitely, but trustees have been advised to check the conditions within a fund’s deed following the outcome of the Hill v Zuda case, an SMSF legal specialist has advised.

DBA Lawyers special counsel Bryce Figot said the High Court decision in Hill v Zuda (2022) highlights that SMSF BDBNs were not subject to Superannuation Industry (Supervision) (SIS) Regulation 6.17A and thus the length of a BDBN was defined by conditions within the SMSF trust deed.

As a result of this, Figot said there were a number of traditional practices SMSF practitioners and trustees should avoid if they did not want the BDBN to have a time limit imposed on it by the regulation.

“If you do have a client with a deed that definitely opts in [to Regulation 6.17A] or even if it is just ambiguous, [then have] the deed updated as soon as possible [and] make it very clear that the regulation does not apply,” he said.

He noted in the case of Donovan v Donovan (2009), the deed was found to be ambiguous and the judge in that case ruled it was the intent of the deed to require that the BDBN was in line with Regulation 6.17A and thus limited to three years.

Hill v Zuda, which placed SMSF BDBNs outside the regulation, emphasised the ability of an SMSF’s BDBN to last indefinitely provided the deed had been appropriately written.

“What does this case mean for our deed? Check the BDBN. If the BDBN states that it only lasts three years or is in any way ambiguous, you might need a new BDBN, or if there is a template that you or your clients tend to use in making BDBNs, [then] you need to check that template,” Figot said.

“We now know that a BDBN can last indefinitely if properly made, but we also know that depending on the documentation you can use, it might only last for three years and now you have a BDBN that [can last indefinitely].”

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