The status of SMSF wills as a tool to bind death benefits has been affirmed by the Hill v Zuda case and will lead to an increase in their use by SMSFs seeking certainty in estate planning outcomes, according to an estate planning lawyer.
Inherit Australia co-founder Chris Hill said the recently decided case stated binding death benefit nominations (BDBN) were not constrained by superannuation regulations and also highlighted that an SMSF will was a legitimate form of binding assets for beneficiaries.
“What is unique about the Zuda case is the death benefit nomination was hardwired into the deed as opposed to being in a separate document that was written by the member and handed to the trustee or kept on file,” Hill said during a Smarter SMSF webinar today.
“This has revived the whole question about an SMSF will because by its nature they are hardwired into the deed.
“We will see more SMSF wills going forward because they provide more certainty, not just because Hill and Zuda effectively involves an SMSF deed where the death benefit nomination was in a deed amendment, but around a whole bunch of issues such as whether the nomination exists in a separate document, whether it’s served on the trustee and whether it follows a prescribed form that was compliant with the deed.”
Hill noted SMSF wills did not require any changes to the trust deed, but could be made effective through a special rule of the fund, which worked in the same way as a deed of amendment but the rule can only be changed by the member affected.
“By making the nomination rule a rule of the fund, it is adopted into the governing rules of the fund as if it was written into the rules via a deed of amendment. It achieves the same end but in a more convenient manner because those rules can be changed by a special resolution,” he said.
“What adds value and importance to the concept of a special rule is that if you look at the history of cases [related to BDBNs], the court applies black letter law. They just look at the terms of the deed and they interpret the deed, but they don’t exercise any discretion other than what the deed allows.
“Where the focus is on the deed and the rules of the fund, which is the court’s approach, it is safer to adopt systems or processes that hardwire rules into the fund because that’s where the court will be focusing its attention.”
