SMSFs urged to review BDBNs ahead of High Court decision
SMSF clients with binding death benefit nominations older than three years may want to renew their BDBN in case the upcoming High Court decision on Hill v Zuda decision renders them invalid, a law firm cautions.
Last year, the WA Court of Appeal handed down a decision in the case Hill v Zuda Pty Ltd [2021] WASCA 59, which provided a strong indication of how long a binding death benefit nomination can last.
However, after an application to have the appeal heard by the High Court was approved, the High Court is set to determine whether a BDBN can be non-lapsing or whether it lapses after three years.
Depending on the outcome of the case, Cooper Grace Ward partner Scott Hay-Bartlem said the High Court’s decision could potentially have some serious consequences for clients that have binding death benefit nominations that are more than three years old, particularly where the client has lost capacity and can’t do a new one.
Speaking at the CGW Annual Adviser Conference, Mr Hay-Bartlem said this has raised questions from clients around whether they clients with BDBNs older than three years should redo them.
“Before the Hill v Zuda case, we would have said don't worry about it. Now you have to say well it’s probably okay but the High Court may decide that you need to redo them because it has lapsed,” he said.
“So, where you have clients with more than three-year-old binding death benefit nominations, we should be thinking about getting them re-signed to start our three years running again. Now the High Court might say ‘no people, your technical esoteric argument is ridiculous, it’s all cool and they'll stay, but if they knock them down, we're going to have a whole lot of three-year-old binding death benefit nominations that are now invalid and no longer binding.”
Mr Hay-Bartlem said the upcoming case has also prompted a lot of discussion around alternatives to binding death benefit nominations such as reversionary pensions.
While there are no concerns around reversionary pensions lapsing with the rules for reversionary pensions set out in the regulations rather than the SIS Act, there may be other issues to consider, he said.
“Reversionary pensions only work if you're actually drawing a pension to begin with and to the extent you're drawing a pension,” he noted.
He also pointed out that many clients who were previously entirely in pension phase before 1 July 2017, have had to move money to accumulation following the introduction of the transfer balance cap.
“Now a few people have said forget binding death benefit nominations, you need a death benefit will or a binding death benefit agreement. That's not going to help you because the rules are going to come out the same,” Mr Hay-Bartlem cautioned.
“In fact, the Hill v Zuda binding death benefit nomination was actually a provision of the trust deed, it wasn't a separate binding death benefit nomination at all and a binding death benefit will or a binding death will or whatever you want to call it is the exactly the same creature as a binding death benefit nomination with the same legal basis. So, if your binding death benefit nomination can't last beyond three years, your binding death will or agreement are not going to last beyond three years either.”
![Miranda Brownlee](/images/about/Miranda_Brownlee_headshot_update.jpg)
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.