NOTIONAL ESTATE, WHAT IS IT AND HOW CAN IT HELP YOUR FAMILY PROVISIONS CLAIM

Published 28 Jun 2013

Author: Garbis Kolokossian

New South Wales is one of the few states in Australia which provide claimants in Family Provisions matters with an opportunity of drawing properties that have been either previously distributed or distributed after the passing of the deceased into the estate to be taken into consideration in the bulk asset thus increasing the value of the estate and in some cases allowing a claimant the opportunity to claim on assets which would have not formed part of the estate without the existence of this clause.

The Succession Act 2006 (the Act) in particular Section 63(5) of the act enables the Supreme Court of NSW to make a Family Provisions Order out of property designated Notional Estate of a deceased person by an order under part 3.3.

Section 80 of the Act permits the court to designate property as notional estate where the deceased has entered into a “relevant property transaction” in the three (3) years prior to his or her death.

This article will go into exploring what the term “relevant property transaction” is and how it can effect the way in which lawyers advise clients on this concept of notional estate.

From the legislation it is understood that the relevant property transaction is established if the deceased person, does, directly or indirectly or does not do any act that (immediately or at some later time) results in property being held by another person. The terminology used above can be found in Section 75 of the Succession Act 2006. For ease of reference I have enclosed in this article Section 76 of the Succession Act 2006 which clearly articulates examples of relevant property transactions which fall within the umbrella of the paragraph.

 
The circumstances are as follows:

            (a) if a person is entitled to exercise a power to appoint, or dispose of, property that is not in the person’s estate and does not exercise that power  before ceasing (because of death or the occurrence of any other event) to be entitled to do so, with the result that the property becomes held by another     person (whether or not as trustee) or subject to a trust or another person        (immediately or at some later time) becomes, or continues to be, entitled to        exercise the power,

 

            (b) if a person holds an interest in property as a joint tenant and the person does not sever that interest before ceasing (because of death or the occurrence of any other event) to be entitled to do so, with the result that, on the person’s death, the property becomes, by operation of the right of    survivorship, held by another person (whether or not as trustee) or subject to a trust,

            (c) if a person holds an interest in property in which another interest is held by another person (whether or not as trustee) or is subject to a trust, and the  person is entitled to exercise a power to extinguish the other interest in the property and the power is not exercised before the person ceases (because     of death or the occurrence of any other event) to be so entitled with the result  that the other interest in the property continues to be so held or subject to the trust,

            (d) if a person is entitled, in relation to a life assurance policy on the person’s life under which money is payable on the person’s death or if some other          event occurs to a person other than the legal representative of the person’s  estate, to exercise a power:

                        (i) to substitute a person or a trust for the person to whom, or trust subject to which, money is payable under the policy, or

                        (ii) to surrender or otherwise deal with the policy,

                        and the person does not exercise that power before ceasing (because of death or the occurrence of any other event) to be entitled to do so,

            (e) if a person who is a member of, or a participant in, a body (corporate or unincorporate), association, scheme, fund or plan, dies                       and property (immediately or at some later time) becomes held by another person (whether or not as trustee) or subject to a trust because of the person’s membership or participation and the person’s death or the occurrence of any other event,

            (f) if a person enters into a contract disposing of property out of the person’s estate, whether or not the disposition is to take effect before,                        on or after the person’s death or under the person’s will or otherwise.

In order to further understand relevant property transactions, having control over property it is imperative to consider cases such as Kavalle V Burbidge; Hyland v Burbidge (1998) 43 NSWLR 422. In these cases it was held that the “power… to dispose of property” was to be understood as the capacity to control property. In the above mentioned case it was suggested that the power to control foundation was sufficient to permit the Court to designate property of that foundation notional estate. The failure of the deceased person in that case to use powers available to her of a governing director to a lot share to herself or anyone else was held to have resulted in a valuable benefit to the surviving share holders and in consequence permit designation of the assets of company as notional estate. In other words a choice by a governing director not to deal with shares by removing them out of the benefit of that hands of other stakeholders in a company leading to the asset initially not forming part of the estate was held to be a relevant transaction. While in this case no active steps were taken to deal with the property it is the Courts view that the decision not to deal with property is also sufficient to qualify a relevant transaction for the purposes of the notional estate provisions of the Succession Act 2006.

When determining whether asset in any company or its shares may be designated notional estate it is necessary to determination the rights and powers the deceased person had to distribute those assets to either himself or herself in the three (3) years prior to the passing. Some of the considerations that need to be undertaken are what the deceased person writes and powers were as a shareholder or a stakeholder in a company/ director and the nature of the asset including what profits have been retained which could be distributed to shareholders.

The notional estate provision goes further to that of a person who has ownership of shares or an involvement in a company. It is naturally and generally always been considered that superannuation or superannuation policies with death benefits do not form part of a deceased’s estate. An appropriate consideration and appropriate reference to the sections of the legislation mentioned above reiterate a different perspective on these issues. It is important when considering superannuation or death benefits to consider when the allocation of benefit was made, to whom the allocation was made. It is evident to cases referred above and the wording of Section 75 and Section 76 of the Succession Act 2006 that certain decisions made by a deceased person in his or her lifetime to either deal with or not deal with property could in fact raise arguments of notional estate.

To assist further, here are some examples of when notional estate might be relevant:

Scenario One – The deceased (three years prior to death) sells all his/her assets before he/she dies and gives the money to a friend.

Scenario two – The deceased, within three years of death, transfers a house or other assets to some other person for a nominal fee to avoid having that form part of the estate.

The examples above do not constitute all possible scenarios where notional estate becomes relevant. This is highlighted as a tool for readers to help explain the concepts.

When considering your rights with respect to Family Provisions claims it is imperative to seek legal advice in particular in circumstances where it seems as though assets of the estate were distributed or dissolved prior to the passing of the deceased. This arouses opportunities for eligible persons under Section 57 of the Succession Act 2006 to make claims for further provision out of an estate where traditionally other states would not allow.

GMP Contesting Wills Lawyers is a firm that has a team of lawyers that work in Contesting Wills and Family Provision law. If you have any questions about notional estate we strongly encourage you to contact either Garbis Kolokossian or David Cossalter.

This article should not be construed to be legal advice as the personal circumstances and facts associated with each estate and case are independent in their own right and must be treated as such.

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