What is Notional Estate?
A person’s last Will dictates how their estate assets are to be distributed upon their death.
However, estate assets only include property which is owned solely by the deceased person as at the date of their death. Property held jointly with another or others (e.g. money held in joint bank accounts and real estate held by way of joint tenancy) and certain financial interests (e.g. beneficiary interests under a trust or in superannuation) are not considered estate assets.
Under the Succession Act 2006 (NSW), the Supreme Court of New South Wales has the power to ‘designate’ non-estate assets as ‘notional estate’.
Notional Estate and Family Provision Orders
Family Provision Orders can be made by the Court using a deceased person’s notional estate. Such orders may be made in favour of an eligible person who did not receive adequate provision under the estate. Examples of eligible persons include: current and former spouses, de facto or same sex partners, children, people who were members of the deceased’s household and dependent including grandchildren.
Notional Estate Orders
The Court can only make Notional Estate Orders where a deceased person left no estate, the estate was insufficient to properly provide for an eligible person, or provision ought not be made entirely out of the estate because there are other entitled persons or special circumstances exist.
The Court may make Notional Estate Orders in respect of property and/or financial interests:
- Transferred to beneficiaries during the ordinary course of estate administration;
- Transferred or disposed of during the deceased person’s lifetime (‘Relevant Property Transactions’) – outlined further below;
- Not directly owned by the deceased person but over which they exercised some form of control (superannuation, life insurance or family trust); or
- Which could have formed part of a deceased person’s estate had they exercised a power to deal with it before their death.
Relevant Property Transactions
A ‘Relevant Property Transaction’ occurs in circumstances where a person either has done an act or failed to do an act, with the result that property of a deceased person is subsequently held by another person or subject to a trust.
Where a deceased person has been given full valuable consideration (e.g. an amount fairly equivalent) in exchange for an act or failure to act, a Relevant Property Transaction does not occur. For example, if a person sells property to a family member for market value, the sale does not constitute a Relevant Property Transaction.
Kate recently passed away. At the time of her death, Kate was married to Brian who was her second husband. She had a son Evan from her first marriage. Kate owned a house as joint tenants with Brian worth about $2M, but she had very few other assets.
Under the rule of survivorship, Kate’s interest in the property passed automatically to Brian upon her death.
Had Kate arranged for the joint tenancy to be severed, she would have owned the property with Brian as tenants-in-common at the time of her death. The result being that her interest in the property would have formed part of her estate and ultimately been available in part for Evan under her will.
Kate’s failure to exercise her power to sever the joint tenancy immediately prior to her death would be considered a Relevant Property Transaction. If Evan brought proceedings for Family Provision Orders, Kate’s interest in the property could be designated as notional estate by the Court, allowing it to be distributed in part to Evan for his further maintenance, advancement and education in life.
James held a superannuation policy which incorporated a large death benefit. James died suddenly having nominated his wife under his superannuation policy.
The death benefit can be designated as notional property by the Court where, for example, the court is satisfied that a Family Provision Order ought to be made in favour of James’ children.
Here, the Relevant Property Transaction would be James’ failure to substitute his children in place of his wife under his superannuation policy immediately prior to his death.
Timing of Relevant Property Transactions
Even where the Court is satisfied that a deceased person entered into a Relevant Property Transaction, the Court can only make an order designating property as notional if the transaction happened:
- Within three (3) years of the deceased’s death, where the transaction was entered into with the intention of limiting or denying provision to an eligible applicant;
- Within one (1) year of the deceased’s death, if they had a moral obligation to adequately provide for an eligible applicant, provided the deceased’s moral obligation to the applicant was substantially greater than any moral obligation on behalf of the deceased to enter into the transaction; or
- On or after the date of death of the deceased person.
There are other notional estate orders available, aside from those relating to Relevant Property Transactions. Be sure to contact a solicitor if you believe certain property should have formed part of a deceased person’s estate.
Proceedings in respect of family provision orders (including notional property orders) must be commenced in New South Wales within one (1) year of a deceased person’s death, unless there are extenuating circumstances. You should instruct a lawyer well before this time period lapses.
If you would like to know more about matters relating to notional estate orders or family provision, we would be pleased to speak with you to advise you about your options. You can either book an appointment online or call us on (02) 4050 0330 for an obligation-free consultation.