For many years there has been a level of debate about whether self-managed superannuation funds (SMSFs) were permitted to offer binding death benefit nominations (BDBNs) and if so, whether any such BDBN would automatically lapse after 3 years.
A similar level of confusion has existed in relation to the form of a nomination, for example if witnesses are needed, how many should there be.
To help us clear up the confusion we spoke with Matthew Burgess from View Legal.
Matthew said “The Tax Office ultimately answered the question succinctly in SMSF Determination 2008/3, where they confirmed that section 59 of the Superannuation Industry (Supervision) Act 1993 and regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (SISR) do not apply to SMSFs.
This means that 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.”
According to regulation 6.17A(7) of SISR, a BDBN regulated by that provision lapses –
1. at the end of the period of 3 years after the day it was first signed, or last confirmed or amended, by the member; or
2. if the governing rules of the fund fix a shorter period — at the end of that period.
Matthew noted “The decision in Hill v Zuda Pty Ltd  WASCA 59, as relevantly confirmed by the High court in Hill v Zuda Pty Ltd  HCA 21, further reinforces the above conclusion.
In this case, the court confirmed that section 59 of the Superannuation Industry (Supervision) Act 1993 and regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (SISR) do not apply to SMSFs, and cross references the decisions in Munro v Munro  QSC 61 and Cantor Management Services Pty Ltd v Booth  SASCFC 122 as further support for this conclusion.
This meant the failure of the nomination to comply with regulation 6.17A (in that it was made more than 3 years before the death of the member and was not witnessed by 2 witnesses) was irrelevant to whether it was binding on the trustee of the SMSF.”
Similarly, the position in relation to non-lapsing BDBNs for non-SMSFs (eg retail, industry, corporate and small APRA funds) has also been the subject of long standing debate.
Matthew confirmed that the approach that appears generally accepted for non-SMSFs and BDBNs can be summarised as follows, noting that APRA has specifically confirmed in Prudential Practice Guide SPG 280 that non-lapsing BDBNs are possible:
(a) ‘standard’ BDBNs are lapsing and will comply with section 59(1A) of SISA. This means they will also be regulated by regulation 6.17A (7) SISR (as set out above);
(b) it is possible however for non-lapsing BDBNs to be created under section 59(1)(a) of SISA. This section is not caught by regulation 6.17A (7) SISR and therefore any BDBN made pursuant to this section does not automatically lapse. Arguably the key aspects of ensuring the non-lapsing BDBN is in fact valid are that the trust deed for the fund must permit the approach and the trustee of the fund must consent to the nomination and the form it can be made in (for example, including the number of witnesses);
(c) in contrast, standard lapsing BDBNs do not require the consent of the trustee.