The Modern Family Provision Claim – Notional estate, lifetime transactions and practical estate planning

Good Morning Everyone,

This is the last of my series of newsletters discussing New South Wales family provision claims. One of the distinctive features of New South Wales succession law is the notional estate jurisdiction.

A family provision order is made against the deceased’s estate where a dependant has not been provided with adequate provision. In some cases, substantial assets have been removed from the estate before death to defeat any family provision claim. Chapter 3 of the Succession Act 2006 the Court, in specified circumstances, to designate property that is not part of the deceased’s ordinary estate as notional estate as an anti-avoidance measure.

It recognises that a deceased person’s apparent estate may not represent the resources that were available to that person shortly before death. The notional estate provisions may permit the Court, in appropriate circumstances, to look at the transaction and designate property as notional estate. To avoid family provisions applications by eligible dependants, the deceased may have transferred much of the assets. If the Court considered only the assets at death it would not represent the true value. 

The notional estate jurisdiction is limited and provides safeguards and is not unlimited. The Court must not make a notional estate order unless specified circumstances exist, including circumstances where:

• the deceased left no estate;
• the estate is insufficient to meet the provision or costs that should be made; or
• provision should not be made wholly from the estate because of competing applicants or special circumstances.

The Court must also consider the relevant statutory requirements before designating property as notional estate legislation addresses transactions:

• made within three years before death where the deceased intended wholly or partly to deny or limit provision;
• within one year before death where the deceased’s moral obligation to provide for an eligible person was substantially greater than the moral obligation to enter into the transaction; and
• certain transactions taking effect on or after death.

The precise statutory requirements must be examined in every case. Modern estate planning frequently involves:

• discretionary trusts;
• companies;
• jointly owned property;
• superannuation;
• insurance policies;
• loans;
• family businesses; and
• lifetime transfers.

Consequently, identifying the deceased’s “estate” may require substantially more investigation than simply obtaining the will and probate papers. The legal ownership of an asset at death is only one part of the analysis.

Jointly owned property presents particular issues because property held jointly may pass by survivorship rather than under the will. That does not mean that every jointly owned asset will automatically be available to satisfy a family provision claim. However, the circumstances in which the ownership was created, changed or transferred may be relevant to the broader statutory inquiry.

While superannuation usually does not form part of the deceased’s estate, in the same way as ordinary estate assets, its treatment requires separate consideration when assessing the overall succession position along with the resources available to competing beneficiaries. The nomination and payment arrangements should be examined carefully in the light of any potential family provision dispute.

Lifetime gifts have been examined by the courts and may be entirely legitimate. People are entitled to deal with their property during their lifetime as they wish. However, the circumstances surrounding a substantial transfer before death may become relevant to a family provision claim, particularly where the statutory requirements for a notional estate order are satisfied. This is one reason why substantial transactions undertaken during the final years of a person’s life should be carefully documented.

A family provision application unless there are particular circumstances, must be filed within 12 months death. Any application must be made promptly and may be made prior to any grant of probate. The fact that an estate has not yet been distributed does not mean that an applicant can safely wait.

An executor should not assume that the estate can simply be distributed immediately after probate. The legislation contains provisions dealing with the protection of personal representatives who distribute estates after giving appropriate notice and satisfying statutory requirements. Where there is a known or reasonably anticipated family provision claim, specialist advice should be obtained before distribution. The executor may also need to consider whether the estate should be preserved pending resolution of a potential claim.

When drafting a will, a person must make a family provision risk assessment and consider amongst other things family; assets; relationships and testamentary intentions and whether they have made adequate provision for their dependants. Particularly:

• Why have I chosen particular beneficiaries?
• Why have I excluded or made lesser provision for another person?
• Have I recorded my reasons?
• Are those reasons supported by evidence?

An executor as part of their duty needs to undertake the following:

1. Obtain the will and any earlier wills that have been provided to them, if required by the beneficiaries;
2. Identify the beneficiaries and any potential eligible persons who may make a family provision claim;
3. Identify the estate assets including superannuation; any jointly owned assets and arrange any appropriate valuations;
4. Make enquiries regarding any substantial lifetime transactions; trusts and companies;
5. Identify debts and liabilities;

I recommend that an executor should obtain legal advice regarding an application for probate or if there is no will, administration and before any substantial distribution. This is to minimise any personal liability risk.

If an eligible person who believes that the deceased has not made adequate provision, they should obtain advice promptly noting the filing limitation of 12 months from the date of death. Before any application is filed they must consider their current and future needs compared to other beneficiaries and the assets of the estate.  

The family provision jurisdiction reflects an important compromise between respecting a person’s right to determine what happens to their property after death and the legal recognition of the deceased’s responsibilities towards certain people. The modern law therefore does not guarantee an inheritance to every relative, instead, it provides a mechanism by which the Court can intervene where an eligible person has not received adequate provision for their proper maintenance, education or advancement in life.

The NSW legislation is deliberately broad enough to accommodate modern family structures, while also giving the Court substantial discretion to consider the individual circumstances of each case. The notional estate provisions add a further dimension by permitting the Court, in prescribed circumstances, to look beyond the assets technically forming part of the estate at death.

When drafting a will, effective estate planning requires consideration of the family relationships, financial circumstances, asset ownership structures, lifetime transactions and potential family provision claims that may arise after death. For executors and beneficiaries, early identification of potential claims is equally important because the statutory time limit is generally 12 months from death.

I have assisted many clients with drafting wills with the family provision legislation in mind to minimise as much as possible any family provision claim being filed. Our expertise includes undertaking probate and administration and addressing family provision in the Supreme Court. If you or anyone you know requires assistance in either drafting a will or a family provision matter, please do not hesitate in contacting me. 

Wishing you a wonderful day,

Jeffrey Choy

JCL Legal

0419 233 670

jeffrey@jcllegal.com.au

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Legal Disclaimer: This guide is for informational purposes only and does not constitute legal advice.