It is common for testators to transfer property or assets to their intended beneficiaries prior to their death, in an effort to avoid any potential challenges to their will. The logic being that an applicant will be unable to challenge the will where the estate has no real value. However, in NSW transferring your assets before your death will not necessarily prevent a family provision claim from being made against your estate and in particular circumstances the court may make a Notional Estate Order.
What is Notional Estate?
Notional estate may consist of property which was either not included in the estate or has already been distributed from the estate. Property that was not included in the estate may be designated notional estate if its exclusion from the estate was a result of a relevant property transaction.
Relevant property transactions, per s 75 Succession Act, are any transactions in which a person by an act or omission transfers property or settles the property on trust without receiving full or valuable consideration in return. That is, where the property has been gifted or transferred to another person without payment in money or otherwise.
Pursuant to s 80 Succession Act, the relevant property transactions must have taken place either:
- Within 3 years of the deceased death, where the transaction was entered into with the intention to limit the provision which could be made out of the estate for an eligible person; OR
- Within 1 year of the deceased death, where the transaction was entered into where the deceased owed a greater moral obligation towards the claimant than the transferee; OR
- On or after the deceased's death.
Examples of Notional Estate
Examples of property which may be deemed notional estate include:
- Property held as Joint Tenants. Generally, in this case, upon the death of a joint tenant their interest in the property is automatically transferred to the surviving joint tenant. However, as noted in s 76(2)(b) Succession Act, property transferred to a Joint Tenant as a result of the right of survivorship is considered to be a transaction without consideration, and thus, may be deemed notional estate.
- Superannuation. Superannuation funds do not form part of a deceased's estate. However, where the nominated beneficiary of the superannuation is not the executor or administrator of the deceased's estate, the deceased may be deemed to have committed a relevant omission and the superannuation funds may form part of the notional estate.
If a notional estate order is made then the current owner's rights to the relevant property will be extinguished to the extent they are affected by the order, and the court will treat the property as though it formed part of the actual estate.
When Will Notional Estate Be Considered?
Notional estate may be considered for the purpose of making a family provision order or for the purpose of ordering that costs be paid from the notional estate. However, the court's power to make a notional estate order is subject to ss 83, 87 and 88 Succession Act.
A notional estate order will not be made unless:
- The deceased left no actual estate;
- The deceased's estate is insufficient to meet any family provision order or costs order that the Court deems should be made;
- Provision should not be made from the actual estate, as there are other persons entitled to a make a family provision claim; or
- Other special circumstances are present.
Before making a notional estate order the Court must have regard to the importance of not interfering with reasonable expectations in relation to property; the justice and merits involved in making or refusing to make the order; and any other relevant matter.
The Court will not make a notional estate order simply because there has been a relevant property transaction. Rather, the court must be satisfied that the relevant property transaction:
- Disadvantaged either the family provision applicant, the deceased or the principal party to the transaction; or
- Involved the exercise of, or an omission to exercise, a discretion, power, or right of appointment, nomination, disposition or direction, where if it had been exercised, or not exercised, could have resulted in a benefit to the family provision applicant, the deceased or the principal party to the transaction.
Ultimately, transferring assets prior to your death will not necessarily prevent the court from making orders in respect of those assets; particularly where those assets have been transferred in an effort to intentionally obstruct a potential family provision claim. Where a person can demonstrate that they are eligible to make a family provision claim and that they have been left with inadequate provision, the court may make a family provision order regardless of the fact that there is no actual estate.
DISCLAIMER: The information provided above is published for general informational purposes only and is not intended to be nor should it be relied upon as a substitute for legal or other advice.