On 15 June 2022 the High Court in Hill v Zuda Pty Ltd  HCA 21 ruled against a challenge to earlier court decisions that a binding death benefits nomination (BDBN) made under the governing rules (GRs) [trust deed] of a self managed superannuation fund (SMSF) need not lapse after three years of the nomination as a comparable nomination made under a retail or industry superannuation fund must under Regulation 6.17A(7) of the Superannuation Industry (Supervision) Regulations.
Non-lapsing SMSF BDBNs confirmed
The High Court’s decision confirmed that this regulation, which operates under the force of sub-section 59(1A) of the Superannuation Industry (Supervision) Act 1993 (SIS Act), did not apply to or limit the effectiveness of a BDBN made as non-lapsing more than three years earlier by a member of a SMSF under GRs of the SMSF that allowed for non-lapsing BDBNs.
External discretions and directions
It follows that other limitations in section 59 and Regulation 6.17A also have no application to a SMSF. Among them is the original rule in sub-section 59(1) which broadly, with exceptions, invalidates GRs that allow a person other than the trustee to exercise a discretion under the GRs of a fund. A related provision, which is similarly confined to retail and industry funds, and especially clearly so, following Hill v. Zuda; is section 58 of the SIS Act which broadly, with exceptions, invalidates a GR under which a person may direct the trustee (to act or not act in a certain way in the conduct of the fund).
Implications for death benefits directions
Without the reservation for superannuation funds other than retail and industry funds it would be thought that death benefits agreements or “SMSF wills” included in, or which took effect under, the GRs of a SMSF which prevailed over, or overrode, a power or discretion of a trustee to decide on which dependant of a deceased member was to take death benefits of the member would fail. It seems indisputable now that trustees of SMSFs and Small APRA Funds, can be effectively directed and bound by members on where their death benefits are to go under valid GRs whether that is by nomination, direction or in some other way .
It follows that SMSF GRs are free to allow for members, either not as or not acting in their capacity of trustees or as directors of a trustee, to control decisions over to whom their death benefits are to be paid. This is starkly different to a retail or industry fund that cannot outsource the duties and obligations of its trustee to determine who is take the benefits of a deceased member unless the BDBN requirements in Regulation 6.17A are strictly complied with.
Too much latitude to a SMSF then?
Many SMSF GRs are and will be unconstrained or vague in setting out process of where death benefits of a deceased member are to go without the stricture of Regulation 6.17A. Accordingly SMSF GRs that give a member a binding and final say over to whom their death benefits are to be paid need to be carefully considered when a death benefits decision is to controlled by a member in any way. A reckoning should be taken as to whether the SMSF GRs, that give a member this autonomy over their benefits; is workable, predictable and will limit opportunity for fraud on the member and the member’s family.