High Court decision could spark new BDBN legislation

However, after the daughter of the deceased SMSF member in Hill v Zuda had her application to have the appeal heard by the High Court approved, the High Court is now set to determine whether a BDBN can last indefinitely, which will provide certainlty and have important implications for estate planning and super.

DBA Lawyers director Daniel Butler said depending on the outcome of the decision, its possible that the Commonwealth may actually reconsider some of the legislation on binding death benefits and put forward amendments.

“This has certainly been put forward as a view by various professional bodies including the Law Council of Australia and the Tax Institute of Australia,” Mr Butler said in a recent DBA Lawyers podcast.

Justice Blue in the case of Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [512]) noted:

The structure and drafting of sections 58 and 59 of the SIS Act and regulation 6.17A of the SIS Regulations give rise to ambiguities, uncertainties and potentially unintended consequences … It is highly desirable that those provisions be reviewed by the Commonwealth and recast.

The analysis was also confirmed in H.E.S.T. Australia Ltd v Inkley [2018] SASC 127.

“It is a travesty that we have legislation that is so unworkable and if a Supreme Court is suggesting that its so uncertain and should be recast then that really should be something that Treasury and government should take on board.”

Mr Butler said disputes over matters involving BDBNs can tie up considerable court resources and can chew up hundreds of thousands of dollars in people’s inheritance or future retirement savings and split family members apart.

“[If you look at] a case like Wooster v Morris, there was a BDBN that was eventually found to be valid but the legal costs alone in that judgement in one income year were $350,000,” he explained. The final costs of both parties in this matter may have been considerably more.

If the High Court does favour the view that BDBNs can last indefinitely, Mr Butler said it will most likely be “business as usual” with most SMSF document suppliers having to adopted that view.

Mr Butler noted that where binding death benefit nomination has been subject to the three year rule, it has often expired upon before the death of the member.

He referred to the West Australian decision, Ioppolo v Conti, which was a matter regarding whether the daughters of the deceased mother could become trustees of the fund. 

“It was held there was no entitlement for the daughters to become trustees or the fund on the death of the mother, but in the process of analysis there had been three BDBNs made by that mother which had all expired, so the BDBNs were of no merit whatsoever,” he explained.

Mr Butler said his firm has taken the indefinite view based on its careful and considered review of the legislation and its review of decided cases.

“For quite a number of years, until this position firmed up, we have been taking the view for our clients that you're better off doing it indefinitely but then renewing it every three years just in case,” he said.

“Who would have predicted that this appeal to the High Court would have emanated?”