Superannuation laws and regulations permit for the cashing of a member’s benefits, on death, to a dependant or legal personal representative of said member as nominated by them. For industry funds, these rules and regulations make clear that the trustee must pay that benefit as directed by the member if:
- (a) the person(s) named in the notice are the legal personal representative or a dependant of the member; and
- (b) the proportion of the benefit that will be paid to that person or persons is readily ascertainable; and
- (c) the notice is in writing, signed and dated by the member in the presence of two adult witnesses, each of whom are not a person named in the notice; and
- (d) must contain a declaration signed and dated by the witnesses stating that the notice was signed by the member in their presence.
What has been unclear, is whether the strict procedural requirements concerning the giving of notice by a member of a regulated superannuation fund the trustee by a member also apply to self-managed super funds.
Because of this, it has long been common practice in the superannuation industry for members of SMSFs to issue nominations in accordance with theses requirements as contained in reg 6.17A(4) of the Superannuation Industry (Supervision) Regulations 1994 (‘the Regulations’). Further still, many SMSF trust deeds have been drafted in such a way as to import the provisions of that regulation into the rules of the SMSF.
The recent decision of the High Court in Hill v Zuda Pty Ltd  HCA 21 (‘Hill v Zuda’) has made clear that the requirements in reg 6.17A(4) of the regulations have no application to SMSFs at law. The High Court stated that “giving notice of the kind envisaged by reg 6.17A(4)… would be at best an exercise in formality and at worst redundant.”
The reasoning behind the High Court’s decision in this case was that this regulation (6.17A(4)) was created for purposes of sections within the Superannuation Industry (Supervision) Act 1993 (‘the Act’) that did not apply to SMSFs – namely s 31(1) and 32(1) of the Act.
There are provisions within the rules and regulations that require trustees of superannuation funds to pay the benefit in accordance with a direction made by the member, known as a binding death benefit nomination. The proviso to this is that superannuation rules and regulations require compliance with strict procedural requirements in order.
The natural consequence of this decision is that the Regulations are now far less important to the management of SMSFs, at least as they relate to the making of a binding death benefit nomination. Rather, it is the requirements contained within the rules of an SMSF trust deed that will dictate how a valid nomination can be given by a member to a trustee. Provided a nomination is made in accordance with the rules, if the trustee accepts the form, then as a matter of trust law, it does not matter if the nomination doesn’t meet the formal requirements of reg 6.17A.
This is not to say that the provisions of reg 6.17A(4) will never not apply to an SMSF. It is not uncommon for SMSF trust deeds to import the requirements of that regulation within their rules. In light of the decision in Hill v Zuda, as far as death benefit nominations are concerned, the worst thing an SMSF deed can now do is import these procedures contained within reg 6.17A(4). They regulation creates unnecessary formalities and makes a nomination made by a member less certain and subject to attack.
If you would like to have your SMSF trust deed reviewed or rules updated given the outcome of Hill v Zuda, please get in contact with us and we can assist you