One of the more complex and unique concepts in NSW succession law is that of the notional estate. When a person dies leaving a valid will, their assets (their estate) at the time of their death are distributed in accordance with their directions. However, if certain conditions are met, the Succession Act 2006 (NSW) gives the court discretion to treat certain assets that were not directly owned by the deceased at the time of their passing, or that they had distributed prior to their passing as notionally part of their estate.
What Type of Assets Can Be Designated as Notional Estate?
Assets that can be designated as notional estate must be “relevant property transactions” as defined in section 80(2) of the Succession Act. These are:
a) Transactions that took effect within three years of the passing of the deceased with the intention to, wholly or partly, limit provision to the plaintiff;
b) Transactions that took effect within one year of the deceased’s passing and were entered into when the deceased had a moral obligation to provide for the plaintiff, which was greater than their obligation to enter into the transaction; or
c) Transactions that took effect after the deceased’s passing
Examples of Relevant Property Transactions
Section 76 of the Succession Act provides examples of relevant property transactions, although this is not an exhaustive list:
Superannuation interests – While these funds are held by a trustee and generally do not form part of a deceased’s estate, the Court may exercise its discretion to designate the deceased’s superannuation as part of their estate;
Joint Tenancy – Where two persons own real property as joint tenants, upon the death of one of them their interest is extinguished, and ownership passes to the survivor. However, the Court may exercise its discretion to designate the deceased’s share in the property as notional estate, and essentially ‘drag it back’ from the surviving joint tenant; and
An Asset Transferred without Full Consideration – A common situation where this arises is where a person is close to death and another (commonly a family member) convinces them to transfer assets to them without giving “full valuable consideration”, the Court may exercise its discretion to designate the property as notional estate. In considering what “full valuable consideration” actually means, the Court in Kastrounis v Foundouradakis  NSWSC 264 held that:
“the Act requires “full valuable consideration” and not just “valuable consideration”. The word “full” must be given meaning and effect. The valuable consideration given must be, therefore, approximately equivalent to the value of the property that is disposed of by the deceased.”
In What Circumstances will the Court Make a Notional Estate Order?
It is unusual for courts to make notional estate orders. They are generally reserved for circumstances where a plaintiff can show a need for provision, but there are not enough assets in the deceased’s estate to satisfy a family provision order. Section 81(1)(c) of the Succession Act states that the Court must be satisfied that there are special circumstances that warrant the making of the order.
Section 83 of the Succession Act sets out a number of matters that the Court is required to consider before a notional estate order can be made. One of those being that the court must be satisfied that the relevant property transaction disadvantaged a person entitled to apply for a family provision order from the estate.
Section 87 of the Succession Act states that the Court must not make a notional estate order unless it has considered the following:
a) the importance of not interfering with reasonable expectations in relation to property;
b) the substantial justice and merits involved in making or refusing to make the order; and
c) any other matter it considers relevant in the circumstances.
How Can I Avoid a Notional Estate Claim Being Made Against My Estate?
Where there are persons who meet the criteria to bring a family provision claim and transactions that meet the notional estate criteria, it is always possible that they will be able to make a claim. However, as a will-maker, you can take steps such as making adequate provision for potential applicants, making a statement setting out why provision has not been made or has (in your opinion) been made adequately, or even asking the potential applicant to sign a release of rights to bring a family provision claim. However, given the area’s complexity, it is always preferable to have a qualified lawyer assist you with these matters.
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