Attwood Marshall Lawyers Estate Litigation Senior Associate, Lucy McPherson, joined Robyn Hyland on Radio 4CRB to discuss the concept of notional estate and a recent decision by the NSW Supreme Court that highlights issues that can arise when an estate plan does not give proper consideration to non-estate assets (i.e. superannuation) and a parent’s obligation to provide adequate provision for their children.
What is a “Notional Estate”?
Notional estate is a unique concept in NSW Succession Law that gives the court discretion to claw back certain assets that were not directly owned by a deceased person at the time they died to form part of their estate for the purpose of a family provision order (i.e. a claim upon the estate).
This can happen when an eligible person makes a family provision claim on an estate seeking further provision for their proper maintenance, education, or advancement of life where the actual estate is not sufficient to meet a family provision order.
Some examples of assets that may be designated notional estate by a Court are:
- Assets that were transferred from the deceased to another person within three years prior to the deceased’s death
- Jointly owned property
- Superannuation benefits
- Assets held in trust
Once a court designates property as notional estate, the court can make orders affecting that property and any rights of the new property owner can be extinguished.
Australia’s Succession Law (the law that governs succession of assets) is state-based legislation. Each state and territory have different legislation governing the succession of property. Currently, New South Wales is the only state where notional estate legislation exists.
A recent decision concerning notional estate by the Supreme Court of NSW: Benz v Armstrong  NSWSC 534
The case of Benz v Armstrong  NSWSC 534 involved a surgeon who died and left the majority of his assets to his spouse and the rest and residue of his estate to his children.
The deceased, who had been married twice, had six children with his first wife, and a stepchild with his second wife. Upon marrying his second wife, the deceased executed a Will which appointed his (second) wife as executor and trustee of his estate. Pursuant to the Will, the deceased left his wife a property, money in a specified bank account and all the shares he held in public companies.
The deceased had executed a binding death benefit nomination prior to his death leaving his superannuation benefits to his wife. The self-managed superannuation fund had a total value of just under $12 million.
The rest and residue of his estate was then to be divided equally amongst the deceased’s six children from his first marriage.
As the administrator, the deceased’s wife set out that the net value of the actual estate was reduced to just over $2 million after liabilities and legal expenses had been deducted. After the distributions were made under the Will in favour of the wife, the assets left in the estate, including motor vehicles and furnishings, totalled approximately $200,000.
As the residue of the estate ranks behind the specific gifts in the order of distribution under the Probate and Administration Act 1898 (NSW), the wife acknowledged that the residual beneficiaries would expect to receive nothing from the actual estate.
Despite the deceased’s intention to provide for his six children in his Will, the beneficiaries were ultimately set to get nothing. Following this revelation, three of the deceased’s children brought a Family Provision Claim against the estate.
As part of the Family Provision application the court determined the extent of property that should be designated as notional estate.
The deceased’s children argued that by omitting to revoke his binding death benefit nomination, and/or give a replacement nomination, the deceased failed to do an act that resulted in property being held by another person (his wife) and not his estate.
The deceased could have executed a superannuation nomination in favour of his estate which would have enlarged the estate available for distribution amongst the beneficiaries. In failing to do so, the superannuation benefits became held by the wife wholly.
In this case, the court concluded that the substantial superannuation benefits should be designated notional estate for the purpose of any family provision orders.
The Judge concluded that there was inadequate provision made for each of the children who brought the claims. There was an expectation within the family that all children would share in the deceased’s estate, and that there was no doubt that the testamentary intention of the deceased was that his children should receive an inheritance, which under the deceased’s existing Will, was not able to be discharged.
Despite the binding death benefit nomination being valid under Superannuation Law, the Succession Act allowed the court to disrupt the nomination under the notional estate provisions.
Why Notional Estate does not apply in Queensland
Queensland does not have the same legislative provisions regarding notional estate. In Queensland, if an eligible person brings a family provision application, the claim is limited to those assets held by the deceased person personally at the date of death.
It is important to note that even if you live in Queensland, if you hold NSW-based assets such as property held under joint tenancy and located in New South Wales, that property can still potentially be at risk of being designated notional estate by the NSW Supreme Court.
If a Court can designate superannuation proceeds that are the subject of a binding death benefit nomination, should I still complete one?
Binding death benefit nominations are an important estate planning tool and need to be considered as part of an individual’s overall circumstances. However, this case shows just how important it is to take a holistic approach to your estate plan and ensure that what you put in place will ultimately align with your testamentary intentions and any obligations you have to provide adequate provision for those who have a moral claim on your estate.
It is also important as part of the estate planning process to identify where assets are held and the relevant legislation that may apply to your unique circumstances (including non-estate assets) if you own assets in various states or territories. This is especially important in cross-border communities such as Northern NSW and the Gold Coast.
If someone has failed to leave adequate provision for eligible persons in their Will and certain assets are held in New South Wales, the court may have the ability to claw back assets to ensure any responsibility the deceased has to their dependents can be fulfilled.
For anyone who believes they may have a claim on an estate, time limits do apply and it is important that you obtain legal advice as soon as possible to find out where you stand.
Although at first glance an estate may look small, there may be large assets that fall outside of an estate that the Court can make available for the purpose of a family provision order.
Attwood Marshall Lawyers – Experts in Estate Litigation
Attwood Marshall Lawyers have one of the largest and most experienced Wills and Estates departments, with a dedicated team of lawyers who practice exclusively in estate litigation.
Our lawyers have the state-based knowledge to assist people in Queensland, New South Wales, and Victoria when disputes over Wills and estates arise.
Whether it is representing executors who are defending claims on an estate, supporting a claimant who is seeking further provision from an estate, or advocating for someone who is involved in a dispute with the Public Trustee, we have the skills and expertise to help you resolve your matter effectively.
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