High Court to decide how long can a BDBN last for
For many years there was a debate in the SMSF industry as to whether an SMSF binding death benefit nomination (BDBN) could last indefinitely.
A number of Supreme Court cases from several different Australian states have held that an SMSF BDBN can last indefinitely, so long as the deed is written to provide for this.
Then, earlier this year, Hill v Zuda Pty Ltd  WASCA 59 appeared to have answered this question for all Australian jurisdictions, namely, that yes, an SMSF BDBN can last indefinitely, so long as the deed is written appropriately. However, Hill v Zuda came with one important caveat: it acknowledged that it only applies “until such time as the decision is overruled by the High Court”.
There is no automatic right to have an appeal heard by the High Court. At best, a party has the right to apply for the High Court to consider hearing an appeal.
The daughter of the deceased SMSF member in Hill v Zuda (i.e. Ms Hill) applied to the High Court for special leave to appeal. The High Court has determined that there will be a grant of special leave to appeal in this matter.
Accordingly, the High Court will determine whether an SMSF BDBN can last forever! Therefore, soon, there will be significant clarity Australia-wide in regards to this important matter.
Implications for advisers and SMSF trustees/members right now
For the time being, it is “business as usual”. Namely, it is still best practice to have a deed that expressly states that a BDBN can last indefinitely. That way, if the High Court determines that the BDBN can last indefinitely, then no further action is required.
However, even if the High Court determines that the BDBN can not last indefinitely, then so long as a new BDBN is made within three years, the fund and members are in no worse a position than had the deed said that a BDBN can only last three years. Until the High Court delivers its judgment, you may wish to check on members with BDBNs that are approaching the three-year sunset period to see if the member wants to renew their nomination, just in case.
However, there is another important implication. A BDBN is perhaps the most long-standing and well-understood tool in SMSF succession planning. Yet, even basic questions regarding a BDBN (e.g. how long it can last for) can prove novel and uncertain. We do not recommend the solution to look for more complex and more novel alternative solutions to BDBNs as we suspect this may give rise to more complexity and uncertainty.
This is especially the case for advisers who are not qualified as lawyers who assist with such documents. Generally, the prudent solution is to try to keep things as simple as possible and stick with the “well-trodden road” (i.e. there are numerous cases on BDBNs, but are there any cases on the alternatives?).
Steps to keep things as simple as possible can include:
- ensuring there are no deficiencies in the document trail of the SMSF – if there are deficiencies, one sound option is to commence a new SMSF;
- using a BDBN and then remaking a new BDBN every three years; and
- ensuring that the member is entirely happy with who will be running the SMSF upon death and loss of capacity – if, for example, a second spouse will be running the SMSF upon the member’s death but the member wants their child or children to receive their superannuation death benefits, this could easily lead to conflict. Naturally, there is far less scope for conflict if whoever will be running the SMSF upon the member’s death and loss of capacity is also the person who the member wants to receive their superannuation death benefits.
We recommend that every adviser assisting with BDBNs attend appropriate training on BDBNs. Given there is a pending appeal to the High Court on this important issue, you may wish to have your documents and BDBN practices reviewed by a qualified lawyer to ensure you are not at too much risk. Advisers should also make sure they keep up to date with the latest developments.
For the time being, we will be eagerly monitoring this issue to see what the High Court decides! Naturally, if any changes are required, we will move swiftly.
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.