Binding death benefit notices not applicable to SMSFs

On 15 June 2022, the High Court unanimously dismissed an appeal from a decision of the Court of Appeal of the Supreme Court of Western Australia, in the case of Hill v Zuda as trustee for The Holly Superannuation Fund [2022] HCA 21.

The High Court ruled that Regulation 6.17A (Payment of a benefit on or after death) of the Superannuation Industry (Supervision) Regulations 1994, does not apply to binding death benefit notices in self-managed superannuation funds (‘SMSFs’). 

This means that binding death benefit notices are applicable to regulated superannuation funds that are not SMSFs, but that binding death benefit notices are not applicable to SMSFs.

Accordingly, certain requirements such as:

• the lapsing of binding death benefit notices after three years; and
• that it must be in writing, signed and dated by the members in the presence of two independent witnesses,

do not apply to binding death benefit notices in SMSFs, unless imposed by the trust deed.

The High Court’s decision

This High Court considered the validity of binding death benefit notices in SMSFs, and whether they are required to comply with the strict requirements of Regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994.

Regulation 6.17A sets out the prescribed standards for a member of a regulated superannuation fund to give notice requiring the trustee of the fund to pay the member's benefits to a nominated person, either on or after the member's death.

The primary issue in Hill v Zuda as trustee for The Holly Superannuation Fund [2022] HCA 21 was whether Regulation 6.17A applied to an SMSF.

The High Court held that properly construed, Regulation 6.17A did not apply to an SMSF.

What does this mean for your SMSF?

Regulation 6.22 applies to SMSFs, but Regulation 6.17A does not. 

Thus, in most cases, the payment out after death can only be made to either the legal personal representative, or a dependent. 

The choice between those two is up to the Trustee in accordance with the SMSFs governing rules (not a nomination form), provided the rules governing that choice do not breach Section 31 of the Superannuation Industry (Supervision) Act 1993.

Binding death benefit notices in SMSFs must comply with the rules imposed by the SMSF trust deed, and the requirements in Regulation 6.17A do not have to be complied with – unless imposed by the SMSF trust deed.

Moving forward, the decision in Hill v Zuda as trustee for The Holly Superannuation Fund [2022] HCA 21 will ultimately mean that in tracking through the Superannuation Industry (Supervision) Regulations 1994, Regulation 6.22 (Limitations on cashing benefits in regulated superannuation funds in favour of persons other than member or their legal personal representatives) applies to an SMSF, and Regulation 6.17A does not.

With respect to SMSFs, the decision in Hill v Zuda as trustee for The Holly Superannuation Fund [2022] HCA 21 means that all binding death benefit notice forms are now non-binding, and that if the nomination form specifies someone other than the legal personal representative or a dependent (discounting the unusual circumstances concerning payment to the ATO for lost members), the nomination may be invalid.

What do you need to do?

The decision in Hill v Zuda as trustee for The Holly Superannuation Fund [2022] HCA 21 serves as a timely reminder to review:

• existing binding death benefit notices in respect of regulated superannuation funds, and;
• any trust deeds relating to an SMSF,

in order to ensure that they comply with Regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994, are valid - and that they correctly record your current wishes and circumstances.

If you have a query relating to any of the information in this update, or would like to speak with a member of Holman Webb’s Wills & Estate Planning in relation to a matter of your own, please don’t hesitate to get in touch today.