The decision in Hill v Zuda Pty Ltd [2021] WASCA 59 further reinforces the often cited mantra in relation to all trusts – and particularly self managed superannuation funds (SMSFs) – to: Read the Deed.
In this case the Federal Court confirmed that s 59 of the Superannuation Industry (Supervision) Act 1993 and regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (SISR) do not apply to SMSFs.
This meant, in this case, that the failure of the binding death benefit nomination (BDBN) to comply with regulation 6.17A (in that it was made more than 3 years before the death of the member and was not witnessed by 2 witnesses) was irrelevant to whether it was binding on the trustee of the SMSF.
For many years there was a level of debate about whether SMSFs were permitted to offer BDBNs and if so, whether any such BDBN would automatically lapse after 3 years.
A similar level of confusion existed in relation to the form of a nomination, for example if witnesses are needed, how many should there be.
The ATO ultimately answered the question succinctly in SMSF Determination 2008/3, where they confirmed that s 59 of the Superannuation Industry (Supervision) Act 1993 and regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (SISR) do not apply to SMSFs.
This means that the governing rules of an SMSF may permit members to make death benefit nominations that are binding on the trustee, whether or not in circumstances that accord with the rules in regulation 6.17A of the SISR.
According to regulation 6.17A(7) of SISR, a BDBN regulated by that provision lapses:
Despite the above comments however, the effectiveness of a purported BDBN will depend entirely on its compliance with the trust deed of the SMSF. Thus, as 1 critical example, a significant number of trust deed providers (perhaps a vast majority) will mandate that any BDBN must be signed, and dated, by the member in the presence of 2 witnesses, each of whom has turned 18 and neither of whom is a person mentioned in the BDBN. Requirements analogous to the valid signing of a will.
Similarly, the position in relation to non lapsing BDBNs for non-SMSFs (eg retail, industry, corporate and small APRA funds) has also been the subject of long standing debate.
The approach that appears generally accepted for non-SMSFs and BDBNs can be summarised as follows:
For ease of reference the provisions of s 59 of SISA are set out in full below.
Section 59 SISA – Exercise of discretion by person other than trustee
(1) Subject to subsection (1A), the governing rules of a superannuation entity other than a self managed superannuation fund must not permit a discretion under those rules that is exercisable by a person other than a trustee of the entity to be exercised unless:
(a) those rules require the consent of the trustee, or the trustees, of the entity to the exercise of that discretion; or
(b) if the entity is an employer-sponsored fund:
(i) the exercise of the discretion relates to the contributions that an employer-sponsor will, after the discretion is exercised, be required or permitted to pay to the fund; or
(ii) the exercise of the discretion relates solely to a decision to terminate the fund; or
(iii) the circumstances in which the discretion was exercised are covered by regulations made for the purposes of this subparagraph.
(1A) Despite subsection (1), the governing rules of a superannuation entity may, subject to a trustee of the entity complying with any conditions contained in the regulations, permit a member of the entity, by notice given to a trustee of the entity in accordance with the regulations, to require a trustee of the entity to provide any benefits in respect of the member on or after the member’s death to a person or persons mentioned in the notice, being the legal personal representative or a dependant or dependants of the member.
(2) If the governing rules of a superannuation entity are inconsistent with subsection (1), that subsection prevails, and the governing rules are, to the extent of the inconsistency, invalid.
Matthew Burgess co-founded View in 2014, having been a partner and lawyer at one of Australia’s leading independent law firms for over 17 years.
Matthew’s passion is helping clients to successfully achieve their goals.
Matthew specialises in tax, estate and succession planning, providing strategic advice to business owners and high net worth individuals, and has been recognised in the ‘Best Lawyers’ list since 2014 in relation to trusts and estates and in ‘Doyles’ either personally or as part of View since 2015 in relation to taxation. In 2017 he was also nominated as Tax Partner of the Year (Lawyers Weekly).
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