Managed accounts may be just “one lever of many” that advisers can use to increase scalability in their practice, but the advantages they offer to both clients and advisers make them a crucial consideration.
Compliance staff have been in high demand for a few years now, but the rise of industry super funds and the private capital sector has created even more demand for talent, both at the top and bottom end of the experience spectrum.
High court ruling gives certainty on binding nominations
Self-managed super funds have once again returned to popularity in recent years, with establishments seeing growth once again, as more Australians become engaged with their retirement assets. One of the less-appreciated considerations for all people, however, is what happens to your superannuation when you die.
Death benefits from superannuation fall outside of your will, and are actually controlled by the trustee of your superannuation fund. Whether that is an industry fund, platform or your own SMSF, the trustee has a limited number of options to whom it can distribute your assets, including your spouse and children, but none of this is automatic.
The payment of superannuation assets is usually subject to a Binding Death Benefit Nomination (BDBN), which as the name suggests can “bind” your trustees to pay your benefits to whom you wish. Without a BDBN or other form of binding direction, the trustee has discretion as to where the death benefits are paid among eligible recipients, which is particularly relevant where a surviving child is a member of your SMSF.
The payment of death benefits from the majority of superannuation funds is governed by regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 Act, which requires:
- That the nomination must be signed and dated by the member in the presence of two independent, adult witnesses (who also sign and date the nomination declaring that it was signed by the member in their presence).
- That after a period of three years has elapsed from the member signing or confirming the nomination, it will cease to have effect.
However, SMSFs are not specifically governed by this Act, hence there has been some confusion for several years on how this can be applied. For instance, the ATO, which regulates the sector says 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”.
The question of whether regulation 6.17A is applied to SMSFs has finally been answered in a High Court Case, Hill v Zuda Pty. Ltd. The story goes that the deceased father signed a BDBN five years before his death in 2016, in favour of his partner. Upon his death, his surviving daughter brought action in the Supreme Court of WA, suggesting the nomination had lapsed and hence she had an entitlement to or could pay herself the funds, whatever the case may be. Clearly the case has significant ramifications and planning opportunities for advisers.
In the last week, the High Court of Australia confirmed what previous courts had found, being that regulation 6.17A does not apply to SMSFs. According to Moore’s Legal, the result is that “provided the rules of the SMSF allow it, a member of an SMSF is not required to adhere to the prerequisites of binding death benefit nominations (BDBNs) set out in reg 6.17A, including the requirement that the BDBN must lapse three years from the date it was signed by the member.
“It is important for all members, trustees and advisors of SMSFs to remember that the trustee and members remain governed by the rules of the fund which will need to allow for non-lapsing BDBNs (or indeed any other conditions) if the member is seeking to make such a BDBN,” says Moore’s Legal.
