Many Australians have their own self managed superannuation funds (SMSF). What happens to those SMSF on the death of a member?
Most of us would assume that a member’s interest in a superannuation fund automatically forms part of their estate. This is not always the case. A member has the power (subject to the governing rules of the superannuation fund) to provide the trustee of the fund with a nomination as to the payment of death benefits from the superannuation fund. This is known as a Binding Death Benefit Nomination (BDBN).
The main advantage of using a BDBN is that death benefits can be directed to a particular beneficiary (usually to a dependant spouse) so that the payment is tax free.
Normally, to be effective, a BDBN needs to comply with some technical requirements. Section 59(1A) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) requires compliance with regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). The regulation says that a BDBN must:
- be signed and dated by the member;
- be witnessed by two individuals over the age of 18 not mentioned in the BDBN;
- only nominate beneficiaries who are either dependants or the legal personal representative of the member; and
- be renewed every 3 years.
On 15 June 2022 the High Court handed down its decision in the Hill v Zuda Pty Ltd as trustee for the Holly Superannuation Fund case. The Full Bench of the High Court unanimously held that 6.17A of the SIS Regulations does not apply to SMSF BDBNs. This view is consistent with the view of the NSW Supreme Court and the ATO.
In practical terms, this means:
- that members of an SMSF do not need to renew their BDBN every three years; and
- that the various formal execution requirements (where you would sign the BDBN before 2 witnessed just like a Will) do not apply to SMSF BDBNs.
Though it may seem a great relief that SMSF BDBNs are not required to be remade or reconfirmed every three years – we would still recommend that you periodically review your BDBN (just like your Will) especially if significant events have occurred in your life such as divorce or your spouse’s death.
For any further information regarding this article please call Dominic or Paul on 02 9261 0222 or email dominic@morabitolegal.com.au or paul@morabitolegal.com.au.
1 – See Self Managed Superannuation Funds Determination 2008/3
