Preparing what happens to your estate after death can be complicated when there has been a family breakdown, particularly circumstances that have resulted in estranged or disgruntled relatives. In these situations, it is not uncommon for people to deal with their property during their lifetime so that little of it remains in their estate. There are several ways this can occur, for example, disposing of property, moving property into superannuation and trusts or holding property jointly with another person.
If you have assets in New South Wales and your goal is to deplete your estate in this way so that on your death any challenge to your Will under family provision legislation is thwarted, then think again.
In all Australian states and territories except New South Wales, family provision claims can usually only be satisfied out of property that is in the deceased person's actual estate; that is, property that held in the deceased's name on death or property that comes into their estate (eg, superannuation or life insurance). In NSW, 'notional estate' provisions mean that in certain circumstances property that is not part of the deceased person's 'actual' estate may be included to satisfy a family provision claim.
Family Provision Orders
A Family Provisions Claim can be made by a family member that believes the distribution of the deceased estate will result in inadequate provision being made for the applicant's proper maintenance, education and advancement in life. A claim must be made by an eligible person within 12 months of the date of death (unless the Court otherwise extends the limitation period).
The effect of the notional estate provisions is that the Court can look beyond the assets that were held in the name of the deceased at the time of their death and undo any 'relevant property transaction' which lead to a change in ownership. This means that aggrieved beneficiaries could have access to a much larger 'piggy bank' than was intended.
A relevant property transaction occurs when the deceased has done an act, or failed to do an act (for example, failing to sever a joint tenancy) that has resulted in their property being held by another person, or subject to a trust and the full valuable consideration for the transaction was not given to the deceased.
The timing of the relevant property transaction is very important for property to be declared as part of a person's notional estate. The relevant transaction must have occurred:
- within the 3 year period before the deceased's death (if wholly or partly to take the asset out of the estate),
- within 1 year of the date of death (if the deceased had a moral obligation to provide for the eligible person), or
- on or after the date of death.
People who wish to exercise more control over which of their assets will be available for distribution when they die will need to think ahead and plan carefully. It is important to receive good legal and financial advice, when making your Will or entering into any investments or transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.