Beware the Notional Estate in NSW Estate Planning – Part 1

April 13, 2021

Did you know that in NSW, the value of a deceased person’s estate can be increased to include property not personally owned by them at the time of their death?  In this two-part series, we discuss the concept of the “Notional Estate” in family provision claims and how it has the potential to impact assets even if you do not live in NSW.

What is a family provision claim?

Following a person’s death, an eligible person who believes they have not been adequately provided for in the deceased’s will, can make an application to the Court to receive a share, or a larger share, of the deceased’s estate.  All states and territories in Australia allow these types of applications.

An “eligible person” includes a spouse or de facto partner (including same sex), former spouses, children and other dependents.

The Court can make a family provision order if it is satisfied that the deceased did not make adequate provision for an eligible person’s proper maintenance, education or advancement of life.

When does the Notional Estate arise in a family provision claim?

In NSW, the assets vulnerable to a family provision order can include assets not owned by the deceased at the time of their death. This is a unique feature of the NSW legal system.  In all other states and territories, the Court can only fund a family provision order from the deceased’s actual estate (being those assets personally owned by the deceased at the time of their death).

If there are insufficient funds in the deceased’s actual estate (i.e. assets held solely in their own name at the date of their death) to fund the family provision order, then the Supreme Court of NSW, in certain circumstances, has the power to fund the family provision order from assets not personally owned by the deceased at the date of their death (i.e. this is known as their Notional Estate).

Which assets can potentially be included in a Notional Estate order?

The Court can make a Notional Estate order in relation to assets which:

1. were transferred from the deceased to another person, company or trust without receiving full valuable consideration (i.e. full market value) in the 3 years prior to the deceased’s death on the date of death or after death; and
2. assets held in structures which were effectively controlled by the deceased at the time of their death but were not included in the deceased’s actual estate because of their omission or failure to act.

Common examples of these assets include:

• Jointly held property (e.g. real estate held as joint tenants or joint bank accounts) where ownership automatically passes to the surviving owner after the death of one of them. By failing to sever the joint tenancy before their death, the deceased’s share of the property can be included in the Notional Estate.
• Superannuation entitlements. Although superannuation does not normally form part of your estate unless paid to your executor by the trustee of the superannuation fund after your death, a Notional Estate order by the Court can be made to designate the superannuation funds as part of your Notional Estate.
• Assets held in a trust of which the deceased was the sole trustee or appointor, or in a company of which the deceased was the sole shareholder. For example, if property is held in a company and you fail to declare a dividend to distribute the property to yourself before your death, even though the property is an asset of the company it would fall within your Notional Estate.
• Assets that may have been transferred prior to the testator’s death in the hope they would not be subject to a family provision claim.

Look out for part two of our series where we discuss how certain assets can be at risk of being included in a Notional Estates order even if you live outside of NSW.

For more information, please contact a member of our estate planning team at Fox and Thomas.