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SMSF Wills versus BDBNs — what is best?

By tzhang
22 September 2021 — 7 minute read

SMSF Wills have become a topical issue in recent times as some claim they have certain advantages over binding death benefit nominations (BDBNs). This article briefly examines SMSF Wills and compares them to BDBNs.

In broad terms, it is DBA Lawyers’ view that SMSF Wills are subject to significant legal risk, and therefore, we generally prefer BDBNs.

What is an SMSF Will?

There is considerable variability to strategies that are given the label ‘SMSF Will’ and the methods of how they are intended to operate. Accordingly, what one supplier refers to as an SMSF Will can vary significantly compared to another supplier’s usage of that term. For example, there can be important differences in relation to the following aspects, among other things:

  • The formality requirements of how an SMSF Will must be documented and executed (including witnessing requirements) and whether trustee notification is required.
  • The extent to which a member’s wishes are effectively embedded in hard-wired language in the SMSF deed.
  • The priority rules that apply to conflicts between SMSF Wills, BDBNs and pension nominations.
  • The rules regarding revocation of an SMSF Will compared to the revocation of a BDBN or a reversionary pension nomination.

Some suppliers describe an SMSF Will, in general terms, as the directions made by a member to deal with their death benefit and regulating who gets to act for and on behalf of a deceased member. However, the effectiveness of each SMSF Will strategy depends on the particular documentation and whether the strategy is legally effective.

Some SMSF Wills require recording the member’s instructions via a deed of variation to the SMSF deed, or otherwise via separate documents that seek to limit the future exercise of trustee discretion. Moreover, some SMSF Wills allow for instructions to be given by an alternative decision maker in relation to the payment of a death benefit.

Further, some SMSF deeds include hard-wired language, sometimes termed ‘death benefit rules’ or other ‘special rules’ that deal with payment of death benefits. (For ease of expression and for the purposes of making the comparison with BDBNs, we do not distinguish between SMSF Wills and ‘death benefit rules’ in this article.)

Typically, SMSF deeds that include SMSF Will powers provide that an SMSF Will takes priority over other forms of directions to the trustee, such as a BDBN.

As you will appreciate from the above observations, the term ‘SMSF Will’ does not have a fixed normative meaning. The term is a description for various SMSF succession planning strategies, typically based on the terminology used in the SMSF deed and related documents.

While a BDBN also does not have a fixed normative meaning, SMSF members generally understand what a BDBN is.

So what is best –– an SMSF Will or a BDBN?

Some claim that a major advantage of SMSF Wills is that they do not suffer from the uncertainties associated with the BDBN rules in the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR); particularly reg 6.17A of the SISR.

While SMSF Wills are often drafted so they are not subject to reg 6.17A of the SISR, this is also the case with appropriately drafted BDBNs.

SMSF Wills emerged as an alternative option to BDBNs due to perceived limitations relating to BDBNs. In particular, some considered that BDBNs may be limited to the 3-year sunset period in reg 6.17A(7). Additionally, there was some concern that BDBNs could only be used to specify ‘who’ but not ‘how’ to pay a death benefit. Thus, SMSF Wills and related strategies appeared to initially have some attraction over BDBNs.

However, since mid-1999 when BDBNs first became popular, there has been considerable litigation that has established what a BDBN can and cannot do.

The key cases include Donovan v Donovan [2009] QSC 26, Munro v Munro [2015] QSC 61, Cantor Management Services Pty Ltd v Booth [2017] SASCFC 122, Perry v Nicholson [2017] QSC 163, Re Narumon Pty Ltd [2018] QSC 185 and Hill v Zuda Pty Ltd [2021] WASCA 59 (Hill v Zuda). (Also, the ATO’s view in Self Managed Superannuation Fund Determination SMSFD 2008/3 is instructive.)

As a result of these cases, and other authorities, it is clear that SMSF BDBNs are not subject to reg 6.17A of the SISR or s 59 of the SISA. Similarly, there is no longer any doubt that BDBNs can direct a fund trustee regarding how a death benefit must be paid, eg, as a death benefit pension. Thus, a BDBN based on an SMSF deed that is appropriately drafted can be non-lapsing.

Indeed, in the recent decision of Hill v Zuda, the Western Australian Court of Appeal confirmed that this is the settled legal position in all Australian jurisdictions.

It is also important to note that this position is consistent with the long-held ATO view set out in SMSFD 2008/3 as follows ([1]):

… Section 59 of the … (SISA) and regulation 6.17A of the … (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.

There may be some who say that the number of disputed cases involving BDBNs suggests that SMSF Wills should be used in favour of BDBNs. However, it is our view that the BDBN cases are all positive in providing guidance, clarity and comfort regarding how to implement BDBN strategies successfully.

Indeed, with the benefit of this rich case law which clearly articulates the ‘do’s and don’ts’ of BDBNs, clients can have confidence that BDBNs can provide a straight-forward and legally effective method for SMSF members to provide directions on how their super benefits are to be dealt with upon their death.

As a law firm that works predominantly in SMSFs, we generally favour BDBNs over SMSF Wills. We work at the ‘coal face’ in relation to preparing SMSF documents and advising clients and we are often engaged to provide assistance in death benefit disputes. We have also provided expert input in relation to a number of landmark cases. Thus, we believe we are well placed to offer a considered view on this question.

Accordingly, while we acknowledge the instances where BDBNs have been litigated, and where courts have identified various issues associated with BDBNs, we are comforted that an impressive body of knowledge and legal practice has emerged from these cases.

On the other hand, there does not appear to have been any cases involving SMSF Wills. This means there is no case law authority that we are aware of that provides guidance or clarity on what an SMSF Will is or whether they are effective. We are also not aware of any published ATO or regulatory view on point.

DBA Lawyers’ approach

As a law firm, we encourage our clients to follow established legal practice supported by relevant case law and, where applicable, published views from the ATO as the SMSF regulator (such as in SMSFD 2008/3 noted above).

We consider a BDBN is generally a more straightforward and is more cost-effective method for our firm to service our clients compared to an SMSF Will.

Our SMSF deeds include a free BDBN form for each fund member. This BDBN form can be completed to achieve many popular directions, including a cascading nomination (eg, one or more dependants and/or the legal personal representative can be selected if the member’s spouse predeceases the member).

Our BDBN form also includes an option to easily achieve an automatically reversionary pension leveraging off the power in our SMSF deed. For example, a client may have three account-based pensions in place and wants to make these automatically reversionary to their surviving spouse. Our SMSF deed gives priority to a BDBN document over pension documents to the extent that there is any inconsistency. (Naturally, we always recommend that pension documents be checked anyway to ensure there are no inconsistencies.)

Naturally, for more complex directions, we also offer a tailored BDBN service and other relevant services, including an SMSF Succession Diagnostic Service where we gain an understanding of the client’s circumstances and goals and provide feedback on the key options and strategies to implement those goals in a legally effective manner. 

SMSF succession planning

Strategies such as BDBNs and SMSF Wills should never be implemented in isolation. Our SMSF deed and constitution have many value-added features especially from a succession planning perspective. We can also tailor documents to suit a client’s particular circumstances. Our documentation is prepared by lawyers who are experts in SMSF law.

We can also assist clients to develop and implement an SMSF succession plan that provide for the control of the fund to pass to trusted persons as intended, eg, in relation to loss of capacity or death. We can also assist to integrate their SMSF succession planning with their wills and enduring powers of attorney.

Naturally, the key foundation to many SMSF strategies, including a valid BDBN, is having a sound SMSF deed history. Unless the prior SMSF documents have been properly varied, executed and retained, the deed may be subject to challenge and succession planning and other strategies may be subject to challenge. We offer a SMSF Deed History Review to check and, if instructed, rectify prior document trails.


DBA Lawyers generally recommends a BDBN in preference to an SMSF Will due to, among other reasons, the greater simplicity and confidence we have in BDBN strategies based on an established body of law.  

Of course, all BDBN strategies require a strong foundation in the governing rules of the SMSF. Accordingly, a fund’s document trail must be carefully reviewed prior to any BDBN strategy being implemented to ensure that there are no weaknesses that will compromise the strategy, and an appropriately drafted SMSF deed must be in place.  

Finally, succession to control of an SMSF is also vital as highlighted in the case of Wooster v Morris [2013] VSC 594 where the BDBN was ignored by the deceased member’s second spouse. Accordingly, a BDBN strategy should be implemented as part of an overall SMSF succession plan that integrates with the client’s estate plans. This is best done in conjunction with an experienced lawyer who is qualified to prepare legal documents and covered by appropriate insurance.

By William Fettes (This email address is being protected from spambots. You need JavaScript enabled to view it.), Senior Associate, and Daniel Butler (This email address is being protected from spambots. You need JavaScript enabled to view it.), Director, DBA Lawyers

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Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.


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