Notional Estate Claim (NSW)
New South Wales is the only state in Australia that allows for notional estate claims against deceased estates. A notional estate claim is an application to the court to reacquire assets that were distributed before the death of the testator back into the deceased estate. Broadly speaking, this provision allows family members and other dependents to claim certain asset that the deceased disposed of in the three years before their death. The intent behind the introduction of this legal claim is to prevent someone from trying to circumvent a Family Provision Order by gifting their assets away before their death. This article defines notional estate claims and the requirements for a successful claim.
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 makes allowance for the court to designate an asset that is not currently part of the deceased estate as “notionally” part of the deceased estate. In order for property to be eligible for a notional estate claim, the deceased must have owned the property in the last three years. Property in this instance 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. Section 79 of the Succession Act 2006 provides that a notional estate order can be made even after probate has been granted and the estate distributed. The court will only entertain a notional estate claim when the actual estate has insufficient assets, or there are other eligible claimants to a family provision order from the actual estate. The court also has latitude to allow notional estate claims under “special circumstances”.
There is a transfer requirement test on notional estate claims. In order 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 either money or an equivalent asset. In the event that the deceased transferred property for a nominal fee or as a gift, it would not constitute full valuable consideration.
There is another type of asset that qualifies as notional. An asset may 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. A defining characteristic of this category of assets is that it is because of the deceased’s omission or failure to act that it is not already included in the actual estate. For example, a notional estate claim can include:
- Jointly held property where the ownership passes to the surviving owner upon the death of the co-owner. This is considered eligible for notional estate claims because the deceased could have chosen to sever the joint tenancy before their death.
- Superannuation death benefits and attached insurance policies that have a binding death benefit nomination, as the deceased could have chosen to nominate the executor or administrator of the estate, thereby assigning the benefits to the deceased estate.
- Assets held in family trusts, if the deceased had the authority to assign all the capital in the trust to themselves before their death.
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 the transfer directly or indirectly disadvantaged the claimant, the deceased or a principal party to the transaction. This also applies if someone acted or did not act in a way that prevented the claimant, deceased or another principal party from benefiting.
The court will make a decision on the claim 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 has designated property as notional estate property, the asset will be dealt with effectively 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 for notional estate claims differ depending on the intent of the deceased when they made the transfer and the degree of moral responsibility that the deceased had towards the claimant. A notional estate claim can only apply to:
- A transaction that occurred in the last year of the deceased’s life, when the deceased had a moral obligation to adequately provide for the claimant and this obligation was more significant than the moral obligation to engage in the transaction.
- A transaction that took place after the deceased’s death. For example, if the deceased transferred a house to their adult child for a nominal sum before their death, and then the child wants to sell the property after the death, then the asset may be subject to a notional estate claim.
- A transaction that took place in the three years before the death of the deceased, that was entered into with the intent to limit provision for eligible claimants.
Our Contested Wills Team can assist you with bringing a notional estate claim. For advice on this area of estate law or any other legal matter, please make an appointment or call Armstrong Legal on 1300 038 223.