Estate planning in an SMSF

| Admin

SMSF Estate Planning Australia

A Binding Death Benefit Nomination (BDBN) is a format that Members can use to nominate beneficiaries to pass on the super benefits in the SMSF upon their death. It’s also referred to as an ‘SMSF Will’. Death benefit payout can be made to a legal personal representative, a dependent or the estate.

A recent court case, Hill v. Zuda Pty Ltd [2022] HCA 21, implied whether an SMSF can have a Binding Death Benefit Nomination (BDBN) that differs from the prescribed requirements in the superannuation legislation and regulations.

Facts of the case

Mr. Sodhy and Ms. Murray acted as the directors of Zuda Pty Ltd and Members of the Holly Superannuation Fund. According to the executed “Binding Death Benefit Nomination” in the Fund, if either Member of the Fund passes away, the Trustees of the Fund would be obliged to transfer the entire balance of the deceased Member’s account to the surviving Member.

However, Ms. Hill that is 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. Thus, the benefits should be passed onto the estate.

Reg 6.17A

Regulation 6.17A prescribes standards for how a Member of a regulated superannuation fund is to give notice requiring the Trustee of the SMSF to pay the Member’s benefits to a nominated person on or after the Member’s death.

The requirements in Reg 6.17A include that the Binding Death Benefits Nomination ceases to have effect at the end of the period of 3 years after the day it was first signed, or last confirmed or amended, by the Member.

The primary issue in the appeal was whether Reg 6.17A applied to the SMSF .

Conclusion

The High Court concluded that Reg 6.17A does not apply to an SMSF. Thus, the appeal was dismissed.

This case implied that an SMSF is not constrained by the requirements for a BDBN established by the SIS Act. This decision also means that Binding Death Benefit Nominations in SMSFs can last more than three years subject to the terms of the Trust Deed.

This decision is a timely reminder to review existing Binding Death Benefit Nominations and SMSF Deeds to ensure that these do not restrict for Non-Lapsing Binding Death Benefit Nominations, as well as to ensure these are valid and reflect the Members wishes and circumstances.

Topics

Latest Posts

Have Questions?
Ask Superannuation Warehouse experts