When preparing an estate plan, many people want to ensure their assets pass to their chosen beneficiaries. However, transferring assets before death to reduce the value of an estate or prevent a potential family provision claim may not always achieve the intended outcome.
In New South Wales, certain transactions made before a person’s death may be treated as part of their notional estate. If the Court makes a notional estate order, those assets can be considered when determining whether a successful family provision applicant should receive further provision from the estate.
This means a person cannot always remove assets from their estate simply by transferring them to another person, company or trust before death.
Understanding how notional estate rules work is an important part of effective estate planning, particularly for people with significant assets, complex family circumstances or concerns about future estate disputes.
Our experienced wills and estates lawyers in Byron Bay, Ballina, Lismore and Kyogle can provide advice about estate planning, asset protection and reducing the risk of future disputes.
What Is a Notional Estate?
A notional estate is property that the Court can treat as being part of a deceased person’s estate for the purpose of a family provision claim, even though the deceased no longer legally owned that property when they died.
Under the Succession Act 2006 (NSW), the Court has the power to make a notional estate order in certain circumstances.
The purpose of these orders is to prevent a person from deliberately removing assets from their estate to avoid providing for an eligible person who may have a legitimate family provision claim.
If a notional estate order is made, the relevant property may become available to satisfy an order for further provision from the estate.
Why Are Notional Estate Orders Important in Estate Disputes?
A person generally has the freedom to decide who receives their assets after death. However, eligible people may have rights to make a family provision claim if they believe the deceased failed to make adequate provision for them.
Some people attempt to reduce the value of their estate before death by transferring assets to intended beneficiaries or changing ownership structures.
For example, a person may:
- gift property or other valuable assets to a family member before death;
- transfer assets into a company or trust structure;
- change ownership arrangements for jointly held property;
- direct assets outside their estate through certain arrangements.
However, some of these transactions may later be examined by the Court if an eligible person makes a successful family provision claim.
How Does a Notional Estate Order Affect a Family Provision Claim?
A notional estate order does not apply automatically. A person must first make a family provision claim and satisfy the Court that they are entitled to further provision from the deceased’s estate.
A family provision claim may arise where an eligible person believes the deceased did not make adequate provision for their:
- maintenance;
- education;
- advancement in life.
If the Court determines that further provision should be made but the estate does not contain enough assets to satisfy that order, the Court may consider whether property outside the estate should be treated as notional estate.
The Court will consider factors including:
- the financial circumstances and needs of the person making the claim;
- the size and value of the estate;
- the circumstances of other beneficiaries;
- the relationship between the deceased and the claimant;
- any obligations the deceased had towards the claimant.
What Transactions Can Become Part of a Notional Estate?
A notional estate order may apply where the deceased entered into a relevant property transaction before their death.
A relevant property transaction generally involves a person causing property to be held by another person or entity without receiving full valuable consideration in return.
This may include transactions involving:
- assets transferred for less than their market value;
- significant gifts made before death;
- property transferred to another person without adequate payment;
- trusts or companies controlled by the deceased;
- jointly owned property that automatically passes to another owner after death;
- certain superannuation or life insurance arrangements.
When Can a Property Transaction Be Considered a Relevant Transaction?
The timing and circumstances of a transaction are important when the Court considers whether property should form part of the notional estate.
A relevant property transaction may include one that:
- occurred within three years before death and was entered into with the intention of preventing or limiting provision for an eligible person;
- occurred within one year before death where the deceased had a stronger obligation to provide for an eligible person than to complete the transaction;
- takes effect after the deceased’s death.
Each matter depends on its individual circumstances. The Court considers the purpose of the transaction, the relationship between the parties and the impact on potential beneficiaries.
Examples of Assets That May Be Included in a Notional Estate
Notional estate rules can apply to a range of assets depending on the circumstances.
Examples may include:
- Property transfers: A person transfers real estate to another person before death without receiving full market value.
- Trust assets: A deceased person continues to control or benefit from assets held through a trust structure.
- Joint property: A jointly owned property passes automatically to another owner after death.
- Superannuation and insurance: Certain benefits pass outside the estate and may be considered in some circumstances.
The Court does not automatically bring these assets back into an estate. The legal requirements for a notional estate order must first be satisfied.
What Does the Court Consider Before Making a Notional Estate Order?
The Court carefully considers whether making a notional estate order is appropriate.
Before making an order, the Court must consider matters including:
- whether the order would interfere with reasonable expectations about property ownership;
- the fairness and merits of making the order;
- the impact on people who currently own or rely on the property;
- any other circumstances relevant to the case.
The Court must also be satisfied that the deceased’s estate does not contain sufficient assets to meet the family provision order.
Can Assets Be Taken Back Into an Estate After Death?
In some circumstances, assets transferred before death may still affect how an estate is distributed.
A person may believe they have removed assets from their estate by gifting or transferring them before death. However, if a Court makes a notional estate order, those assets may become available to satisfy a successful family provision claim.
This is why estate planning decisions should consider more than simply who receives an asset. The potential impact of succession laws, taxation consequences and future disputes should also be considered.
How Can You Reduce the Risk of a Family Provision Claim?
While no estate plan can completely prevent a dispute, careful planning can reduce the risk of a successful challenge.
Steps that may help include:
- preparing a professionally drafted Will;
- reviewing your Will after major life or financial changes;
- considering whether eligible people may have grounds to make a claim;
- documenting the reasons behind significant estate planning decisions;
- obtaining legal advice before transferring substantial assets.
Early advice can help identify potential issues and ensure your estate plan reflects your intentions while reducing the risk of future disputes.
Conclusion
Notional estate orders play an important role in New South Wales estate disputes. They prevent people from defeating legitimate family provision claims by moving assets outside their estate before death.
Although you may have transferred assets before your death, those assets may still be considered by the Court in certain circumstances.
If you are preparing an estate plan, considering transferring assets, or involved in a family provision dispute, our experienced wills and estates lawyers in Byron Bay, Ballina, Lismore and Kyogle can provide advice tailored to your circumstances.