Estate planning in an SMSF

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A form of a Binding Death Benefit Nomination (BDBN), also referred to as an ‘SMSF Will’ can be done when a Member dies, then the Member’s benefit will be passed on to their beneficiaries of the Member’s legal personal representative.

In a recent court case, Hill v. Zuda Pty Ltd [2022] HCA 21, binding death benefit nominations (BDBN) that don’t always adhere to superannuation laws and regulations were discussed.

Facts of the case

Each of Mr. Sodhy and Ms. Murray served as a director of Zuda Pty Ltd. and a member of the Holly Superannuation Fund. According to a provision titled “Binding Death Benefit Nomination” in the Trust Deed, Zuda would be obligated to transfer the entire balance of the deceased Member’s account to the surviving Member in the event that either Member of the Fund passed away.

Ms. Hill, Mr. Sodhy’s only child, claimed that the binding death benefit nomination clause did not meet the requirements of Reg. 6.17A of the SIS Act when her father passed away on November 22, 2016.

Conclusion

As Reg 6.17A does not apply to an SMSF, the Supreme Court rejected her argument.

She took her appeal to the High Court, which also ruled that an SMSF is exempt from Reg 6.17A.

This demonstrates that an SMSF is not constrained by the requirements for a BDBN established by the SIS Act. It would seem that the BDBN would be valid regardless of the structure as long as the Trust Deed’s terms permit it.

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