Estate planning is an essential area of law. It provides peace of mind, and comfort in the knowledge that your estate will be managed according to your wishes. A binding death benefit nomination is just one piece of the puzzle that is estate planning that was recently considered by the High Court of Australia.
What is a Binding Death Benefit Nomination?
Section 59(1A) of the Superannuation Industry (Supervision) Act 1993 (Cth) provides a member of a superannuation fund the ability to give notice to the fund of a nomination of a recipient of their death benefit. The superannuation fund, as the trustee, is bound by law to follow the directions of the member’s binding death benefit nomination. Generally, for a nomination to be valid it must be made in writing, have been signed in the presence of two witnesses, and received by the trustee. Further, it is important to note the nomination is only valid for three years from the date of signing.
Hill v Zuda Pty Ltd (2022) HCA 21
In this case, the High Court considered whether the requirements for validity of a binding death benefit nomination extended to self-managed superannuation funds. Regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) sets out the requirements outlined above. This case was an appeal from the Supreme Court of Western Australia, but this question had previously been considered by the Supreme Courts of Queensland and South Australia. In each instance, the court found that regulation 6.17A had no application to self-managed super funds. It should be noted that similar requirements may be relevant where the trust deed refers to or incorporates the regulation.
Zuda Pty Ltd was the trustee of a self-managed super fund, which de facto partners Mr. Sodhy and Ms. Murray were members of. The applicant in this case, Ms. Hill, was the sole child of Mr. Sodhy. The trust deed had been amended to include a binding death benefit clause, which gave the direction that in the event of the death of either member, the balance of the deceased’s account was to be paid to the surviving member. Following the death of Mr. Sodhy, Ms. Hill commenced proceedings contesting the nomination on the grounds it did not conform with the requirements found under regulation 6.17A.
The High Court unanimously upheld the decision of the Supreme Court of Western Australia and the Court of Appeal, dismissing the plaintiff’s appeal with costs. In its reasoning, the court found that self-managed super funds fell outside of the meaning attributed to a superannuation fund by the Act, stating (at 6) that “a superannuation fund is a ‘regulated superannuation fund’ if it has a trustee which is a trading or financial corporation.” Further (at 6) it was seen that a “superannuation fund that is a regulated superannuation fund is also an SMSF within the meaning of the Act if it has fewer than five members.” This distinction demonstrated that the main objective of the provisions of the Act being considered did not extend to the regulation of self-managed super funds.
As aforementioned, the question of whether regulations surrounding binding death benefit nominations apply to self-managed super funds had been considered by various Supreme Court jurisdictions. While the High Court’s decision in this case did not deviate from the rulings of those lower courts, its determination was significant in that it solidified the interpretation and applications of the statute and regulations. Furthermore, it now provides authoritative precedent in the states and territories of Australia where this question had not been considered in their jurisdiction.
This decision places increased importance on the trust deed of a self-managed super fund, as it is the trust deed that will impose the requirements for binding death benefit nominations under such funds. Strict adherence to the trust deed is paramount in ensuring that the nomination is valid and enforceable.
If you are feeling uncertain about the legalities associated with estate planning, our experienced team is here to provide you peace of mind. Book online or contact our office to organise a time to speak with one of our solicitors.