New South Wales is the only Australian state that allows for notional estate claims against deceased estates. A notional estate claim is an application to the Supreme Court of NSW to reacquire into the deceased estate assets distributed before the testator’s death. Broadly speaking, it allows family members and other dependents to claim certain asset that the deceased disposed of in the three years before their death. The intent is to prevent someone from trying to circumvent a family provision order by gifting their assets away before their death.

What is a family provision claim?

An eligible person files a family provision claim to the Supreme Court of New South Wales when they feel that they have either not received their full entitlement from a deceased estate, or when they have been left out of a Will altogether.

This claim must be filed within a year of death unless there are special circumstances. A family provision claim applies only to property that would have been legally included in the deceased estate at the time of death.

What is a notional estate claim?

The Succession Act 2006 (NSW) allows the court to designate an asset that is not currently part of the deceased estate as “notionally” part of the deceased estate. For property to be eligible for a notional estate claim, the deceased must have owned the property in the last three years. In this instance, property refers to all types of assets, including real estate, life insurance benefits and superannuation.

A notional estate claim is only possible if a family provision order has already been issued. A notional estate order can be made after probate has been granted and the estate distributed (sec 79 Succession Act 2006). The estate must have insufficient assets, or there must be other eligible claimants to a family provision order from the estate, or there must be “special circumstances”.

There is also a transfer requirement test. For the asset to be designated notional estate, there must have been a relevant property transaction where the property was transferred to someone else without appropriate financial recompense. An unimpeachable property transaction involves “full valuable consideration” with the exchange of an asset for money or an equivalent asset. If the deceased transferred property for a nominal fee or as a gift, it would not constitute full valuable consideration.

An asset may also be classified as notional if it is held in a structure that is not eligible for inclusion in the estate but is still effectively controlled by the deceased. This asset is not included in the actual estate because of the deceased’s omission or failure to act. For example, a notional estate claim can include:

1. Jointly held property where the ownership passes to the surviving owner on the death of the co-owner. This is eligible for notional estate claims because the deceased could have chosen to sever the joint tenancy before their death;
2. Superannuation death benefits and attached insurance policies that have a binding death benefit nomination, because the deceased could have chosen to nominate the executor or administrator of the estate, thereby assigning the benefits to the deceased estate; and
3. Assets held in family trusts, if the deceased had the authority to assign all the capital in the trust to themselves before their death.

Disadvantage Requirements

A notional estate order cannot be made purely on the basis that the deceased arranged their finances in this way. There must be evidence that:

1. the transfer directly or indirectly disadvantaged the deceased, the claimant, or a principal party to the transaction; or
2. someone acted or did not act in a way that prevented the claimant, deceased or another principal party from benefiting.

Other Considerations

The court’s decision will be based on whether the reasons for granting the order are more persuasive than the general imperative to not interfere in the existing provisions of the estate. They will also consider the merits involved in the specific case and whether justice would be served by making the order, as well as any other matters that they may consider relevant.

Once the court designates an asset as notional estate property, it will be dealt with as if it is actual estate property. A notional estate order extinguishes the rights of the former property owner to the extent outlined in the order.

Time Limits

Time limits for notional estate claims differ depending on:

1. the deceased‘s degree of moral responsibility towards the claimant; and
2. the intent of the deceased when they made the transfer.

A notional estate claim can only apply to a transaction:

1. in the last year of the deceased’s life, when the deceased had a moral obligation to adequately provide for the claimant which was more significant than the moral obligation to engage in the transaction;
2. within three years before the deceased’s death with the intent to limit provision for eligible claimants; or
3. after the deceased’s death (e.g. if before their death the deceased transferred a house to their adult child for a nominal sum, then after their death their child wants to sell the property).

If you would like to know more about notional estate orders or family provision, contact us for free telephone advice about your options.