Feeling Left Out? Can the Concept of Notional Estate Assist?

Background

Before passing away, has a deceased family member transferred property to others leaving insufficient assets to meet a claim from yourself?

If you are an eligible person, such as a spouse, de facto partner, child or dependent grandchild and you feel you have not been adequately provided for, you may still be able to challenge the Will. And even if the assets have already been distributed or do not seem sufficient, all is not lost. In New South Wales, the Supreme Court may use what is known as notional estate to clawback the transferred assets to potentially provide for the claim. The Court can, for example, disallow transfers of assets made by the deceased with the intention of defeating a so-called family provision claim.

Under the Succession Act 2006 the Supreme Court can make family provision orders in favour of eligible persons if the Court is satisfied that “adequate provision for the proper maintenance, education or advancement in life of the person” has not been made and ought to have been. If necessary, the court may also make an order in relation to property that is not part of the deceased’s estate or property that has been distributed if it is designated as notional estate.

The legislation applies to property/assets that has been subject of a “relevant transaction”. This means where the assets involved have been transferred without full value having been given within the three years before the date of death with the intention of denying or limiting the provision that could have been made. Examples of the type of asset to which it may apply include transfers to a superannuation fund or family trust and property held as a joint tenant.

Challenging a Will and the importance of the notional estate concept

The following two cases demonstrate some of the complex issues that have to be weighed by the court.

In Charnock v Handley (2011) the Court made a family provision order from property that had already been distributed. In this case the deceased had left all his estate (some $63,000 net) to a friend. His two daughters contested this. The friend claimed he had spent all the money but the Court did not accept this explanation. He produced no documentary evidence to support his claim but it also became clear he had other assets including superannuation funds. The Court made a family provision order amounting to $22,000 to the two daughters noting that the notional estate provisions do not require “the property designated as notional estate to be the same property as the distributed property”. The case demonstrates the power of the Court to make an order affecting an interest in the superannuation fund of a third-party beneficiary.

The recent case of Toscano v Toscano (2017) is a further demonstration of where the NSW Supreme Court used the notional estate provisions to make an order in respect of real estate transferred by a father to only two of his children to the detriment of a third child.

Vittorio Toscano’s second wife, Anna, and two of his children Victor and Maria made an application for a family provision order from his estate. Vittorio died in 2015 leaving an “actual” estate of $591,000. Anna and Maria’s orders were settled but Victor’s application (he had been left just $500) proceeded to hearing. The potential notional estate consisted of real estate transferred to two other siblings less than three years before the date of death for $1, but were worth closer to $2m.

The court had to consider a number of issues. Victor, as the deceased’s child, was eligible to apply for an order. He was estranged from his father but the court accepted this was partly due to the father’s controlling behaviour. As a child, he had contributed for many years to the family business and hence the estate but he was not now in the best of financial circumstances particularly when compared to other siblings.

The widow Anna had received the estate’s principal asset, which Victor did not wish to disturb but it did mean there was insufficient funds to meet his claim. He applied for the properties recently transferred to his siblings to form part of the deceased’s notional estate. The court was satisfied that the deceased’s intention in transferring the properties was “to reduce the chance that his intentions would be thwarted by any legal proceedings, being in fact an application for a family provision order”.

Victor received $180,000 plus some costs.

What does it mean?

The cases outlined, and others, illustrate the potentially broad reach of the notional estate provisions. Will-makers need to be aware of the reach of the court where an eligible person makes a family provision claim. For those individuals who feel they have not been adequately provided for in a Will the scope of assets available to meet their claim is potentially substantially increased.

In contested Will cases the court will consider not just the actual estate of the deceased but any other assets that may be part of the notional estate. However, the court will only include assets of a deceased’s notional estate if the claimant meets the requirements of the Succession Act and there are insufficient funds in the actual estate to meet a provision.

Notional estate provisions potentially frustrate the deceased’s wishes. That gift to a favourite child may not work out as planned.

The property designated as notional estate is not required to be the same property as that distributed.

Those involved in estate planning or who are considering contesting a Will need to be aware of the notional estate provisions.

Superannuation trustees too need to be aware that interests in the funds are potentially within reach of the provisions.

Contact our Expert Wills Solicitors

Szabo & Associates, Solicitors are Sydney based specialists in all aspects of Wills, probate and challenging Wills. Time limits apply (usually 12 months from the date of death) so contact us now on (02) 9281 5088 or fill in our online enquiry form.