In 2011, the deceased made a document purporting to be a binding death benefit nomination. The binding death benefit nomination was in favour of Ms Murray.

The deceased died in 2016. Importantly, the deceased died more than three years after making the binding death benefit nomination.

Key issue

Ms Hill brought an action. She contended, among other things:

[the binding death benefit nomination] was signed more than three years prior to the deceased’s death, and so had ceased to have effect under reg 6.17A(7)(a) of the SIS Regulations.

Why is this still an issue?

Many people might be surprised to hear that this is still an issue.

After all, the ATO commented on this issue in Self-Managed Superannuation Fund Determination SMSFD 2008/3. Namely, the ATO stated:

… 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.

In other words, the ATO confirmed that it is possible for an SMSF’s trust deed to be drafted to enable a binding death benefit nomination to last for more than three years.

However, the ATO is (broadly speaking) not a lawmaking body. All SMSFD 2008/3 can really stand for is that the ATO will not treat a non-lapsing binding death benefit nomination as causing a contravention of the Superannuation Industry (Supervision) Act 1993 (Cth) or the Superannuation Industry (Supervision) Regulations 1994 (Cth), from a regulatory compliance viewpoint.

A court, on the other hand, effectively is a lawmaking body. There have been certain Supreme Court decisions holding that it is possible for an SMSF’s trust deed to be drafted in a wide-enough fashion for a binding death benefit nomination to be able to last for more than three years. See, for example, the decision of the Queensland Supreme Court in Munro v Munro [2015] QSC 61 and Re Narumon Pty Ltd [2018] QSC 185.

That being said, Australia is a federation of states. What one judge decides in one state (e.g. Queensland or South Australia) is not binding in other states (e.g. Western Australia or Victoria).

This is a very important point to bear in mind, especially in, for example, Victoria, where there is no Victorian case law directly on point.

What did the Court of Appeal decide?

The Court of Appeal pointed to the High Court decision of Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, where the High Court stated:

Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong.

Therefore, the Court of Appeal:

… accept[ed] the construction adopted in Cantor Management until such time as the decision is overruled by the High Court. On that basis, we regard ourselves as bound to construe reg 6.17A of the SIS Regulations as not applying to self-managed superannuation funds.

In other words, the Court of Appeal held that it is possible for an SMSF’s trust deed to be drafted to enable a binding death benefit nomination to last for more than three years and that this is the position in all Australian jurisdictions (including, for example, Victoria).

Concluding thoughts

It is difficult to think of a situation where a client would want a three-year lapsing binding death benefit nomination. Naturally, though, a client should always regularly review and consider whether their binding death benefit nomination is still appropriate for their current circumstances.

Therefore, it is important that an SMSF trust deed expressly and clearly allows for non-lapsing binding death benefit nominations. Further, SMSFs with binding death benefit nomination provisions that rely on reg 6.17A should be updated as a matter of urgency.

DBA Lawyers’ SMSF trust deed allows for non-lapsing binding death benefit nominations.

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

By Bryce Figot, special counsel (This email address is being protected from spambots. You need JavaScript enabled to view it.), and Daniel Butler, director (This email address is being protected from spambots. You need JavaScript enabled to view it.), DBA Lawyers