High Court settles uncertainty around BDBNs for SMSFs – Fund Management/ REITs


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On June 15, 2022, the High Court delivered its decision in
Hill against Zuda 1 and in just over 6 pages unanimously determined that SIS Act Regulation 6.17A2 does not apply to BDBNs (Death Benefit Binding Appointments) in Super Self-Directed Funds (SMSF), unless specifically included in the SMSF Indenture.

Policy 6.17A deals with the rights and procedure for SMSF Members to direct the SMSF Trustee as to how to handle their Death Benefit upon their death. If a member does not give instructions, the trustee is able to make the decision for them.

Rule 6.17A also requires that a member’s BDBN be renewed every 3 years.

So why was this decision heard by the High Court?

Mr. Hill died with a BDBN in place, which left his SMSF death benefit to his second wife.

Mr. Hill’s only daughter filed an application challenging the BDBN on the grounds that it did not comply with Rule 6.17A. Some issues were raised when the Western Australian Court of Appeal did not consider the issue in depth.

The High Court granted special leave to appeal and decided that 6.17A did not apply to BDBNs in SMSFs and dismissed the appeal.

So what does this mean for SMSF members?

Although the SMSF Indenture imposes rules regarding the requirements of a BDBN, these SMSF Rules are not required to comply with Rule 6.17A, including the requirement to renew the BDBN every 3 years.

Therefore, if you are one of the millions of SMSF Members across Australia, this means that, provided your SMSF Trust Deed and circumstances permit unexpired BDBN, and do not expressly require compliance with the regulation 6.17A, you can now set and forget in the comfort of knowing that your BDBN is valid.

If you have a current SMSF and BDBN, we recommend that you seek advice on whether you are able to prepare an unexpired BDBN.

Obviously, you should always review your BDBN whenever there is a change in your circumstances or during any estate planning process, so maybe when you receive our reminder letter every three years……

Footnote

1 Hill v Zuda Pty Ltd [2022] HCA 21

2 Regulation 6.17A of the Superannuation Industry (Supervision) (Cth) Regulations 1994

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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