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A new case on SMSF BDBNs has key lessons for all SMSF advisers
Consider this important question: an SMSF member is married to a second spouse. The member and his second spouse are the two trustees of the SMSF. The member wishes to make a valid binding death benefit nomination (BDBN). The member however does not want to tell his second spouse about the BDBN. Does the member have to give the BDBN to ALL trustees for it to be valid?
The recent case of Williams v Williams [2023] QSC 90 — on a mere superficial reading — suggests that the answer is yes: a BDBN must be given to ALL trustees in order to be valid. However, a closer reading of the case, particularly in light of Hill v Zuda [2022] HCA 21, reveals two far more important and strategic implications. Namely:
- Implication 1 — a BDBN only needs to be given to all trustees if so required by the SMSF’s governing rules (often referred as the deed). Pursuant to Hill v Zuda, if the deed states that the BDBN does not need to be given to any trustee to be valid, then the exact reverse of what occurred in Williams v Williams would be the case: namely, the BDBN could be valid without being given to any trustee before the member’s death. The DBA Lawyers’ deed is careful to not require that a BDBN need to be given to any trustee before death. We believe this adds great strategic value to the DBA Lawyers’ deed.
- Implication 2 — at an even higher strategic level, if a member is concerned about giving a BDBN to a trustee, the member should probably urgently consider restructuring their superannuation. Such a concern is probably a suggestion that there may well be a death benefit dispute. Naturally the best way to truly ‘win’ a dispute is to ensure it never arises in the first place.
We now consider the case.
Facts
Anthony Vincent Williams (Deceased Member) was a member of an SMSF named the Boosey Doherty Superannuation Fund (Fund). The original trustees were the Deceased Member and his first wife, Margaret Williams (Margaret). Margaret passed away in 2014, leaving the Deceased Member as a widower. The Deceased Member’s son Paul Francis Williams (Paul) replaced Margaret as a trustee.
In 2019, the Deceased Member remarried a new wife. (It was this new wife who was the one bringing the action (ie, the Applicant) in this case.)
On 26 March 2018, the Deceased Member made a BDBN that directed the trustees to pay 50% of his death benefit to the Applicant and 50% to the Deceased Member’s estate. The BDBN contained a ‘trustee confirmation’ that the Deceased Member accepted the BDBN in his capacity as a trustee.
The Fund’s deed required that the trustees be given written notice of a BDBN. Paul was not given written notice despite being a trustee.
The Deceased Member died on 28 December 2021.
The Applicant sought from the Court a declaration of the validity of the BDBN.
Issue
The Court was essentially asked to decide whether it was enough for just the Deceased Member in his capacity as trustee to have received the written BDBN or was it required to be given to both trustees.
Held
The Court stated that:
The argument by the applicant requires a conclusion that a trustee who has not been given notice will be bound if another trustee is served and creates the resolution or gives notice of a proposed rule. This could, on the applicant’s submission, mean that a trustee would be bound even if the trustee knows nothing of the BDBN or the actions of the other trustee.
The Court held that: ‘The machinery provisions of the Deed envisage the giving of notice to all of the trustees.’ As such, the Applicant failed in her attempt uphold the validity of the BDBN.
Importance of this case
As stated in the introduction, we believe there are critical two implications from this case:
Firstly, a BDBN only needs to be given to all trustees if the governing rules (deed) so require it. It is more strategic for a deed to state that a BDBN need not be given to any trustee during a member’s lifetime (the DBA Lawyers’ deed is drafted in this manner).
Secondly, if a member is concerned about giving a BDBN to a trustee in the first place, the member should probably urgently consider restructuring their superannuation.
Related articles
- The BDBN landscape post-Hill v Zuda
- BDBNs – what to look out for and what to avoid
- How long can an SMSF BDBN last for? The High Court answers in Hill v Zuda
- Advantages of the DBA Lawyers SMSF deed (2022-23)
- DBA Lawyers’ Annual Update Service for keeping SMSF deeds up to date
- SMSF Deed History Review
- SMSF Deed Update
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Bryce Figot (
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