Notional estate is a concept only applicable at present in New South Wales (NSW) and involves the ability to add back to the actual estate assets or values previously gifted or distributed by the deceased or even other assets that are not normally considered Estate assets, ie, Superannuation Funds. It is used in calculation of the Estates whole value for Family provision claim purposes.

By way of background The National Committee for Uniform Succession Laws considered this issue in both its 1997 family provision report to the Standing Committee of Attorneys General(SCAG – a great Acronym!!) initially recommended that the concept of Notional Estates be adopted across all Australian jurisdictions to achieve consistency at the same time as amendments were being made to the various State’s and Territories Succession Laws to achieve the same consistency. However on this particular area of the law none of the States and Territories adopted the NSW Law.

Now the Victorian Law Review Commission has again flagged this idea of Notional Estates for review as part of a boarder review of various aspects of the Succession Laws in that State to be completed by the end of this year. It has called for submissions and in it’s general ambit states:

The Commission has been told that people commonly deal with their property before they die so that little of it remains in their estate and the way in which they choose to distribute their property cannot be challenged under family provision legislation.The Commission understands that specific ways in which people minimise property in their estates include: disposing of property during their lifetime; moving property into superannuation; setting up trusts; and holding property jointly with another person. Note 1

One of the contentious issues involved is in situations with our Superannuation System. Of course being Australia we have different levels of government that all want to have their own laws for the self fulfilling prophecy of continuing to gave themselves more life in the future, without really adding any benefit to real Australians…

Superannuation is regulated by the Commonwealth (there are a few exceptions for State based public servants) and Estate Laws are State based. There is obviously no consistency between the two. The Superannuation system’s sole fundamental principle is to provide for retirement savings. In the case of a fund member dying then the members accumulated funds and any additional Life insurance benefit are generally held for the financially dependent (not always the same as the next of kin) or those specifically nominated in binding nominations by the member to receive the funds. The recipients may be totally different from those provided for in any Will. This is sometimes because of changed circumstances but also can be a strategic decision taken by financial planners in the overall Estate plan. Superannuation contributions and ultimate payouts are taxed concessionally as compared to normal income taxes.

A common case in where these circumstances may be tested are where a deceased has nominated their spouse as their beneficiary of their Super Fund. The deceased may have included their children from a previous marriage in their Will as beneficiaries, however the Estate generally may not have held much solely owned assets as the new family home was jointly held with eh new spouse. In NSW the children can add to the Notional Estate the whole of any Superannuation benefits which the Court can then split between those that are finally successful in any Family Provision Claim.

The NSWLRC also considered that notional estate provisions should be able to operate where there had been an ‘unjust gift’, and gave the example of a depressed or lonely elderly person who rewards a carer for ‘a few months of institutional care… at the expense of many years of family devotion’. Of this type of situation, the NSWLRC said: ‘We cannot say how often cases of this kind occur but we believe that their incidence is such that legislation is called for’. Note 2.

At the time of the NSW Law Reform Commissions Report being published, Professor Woodman of the University of Sydney, wrote of notional estate:

In my view, it represents a savage attack upon the rights of a person to create a settlement affecting his property, and to make gifts if he so desires, and, at the same time, raises difficult questions as to the ‘intention of defeating an application for provision’… True enough, property can be placed beyond the reach of an eligible person, but in my view the necessity of including this Part of the Act should be left in abeyance until statistics show whether or not this is being done on sufficient occasions. Note 3

Victoria’s recommendations will no doubt be closely reviewed by other States and territories. The main contentions will be that people are trying to avoid their Family Provision responsibilities or that they have the right to do so with their own assets!!

PUBLICATION: ENVOY – The newsletter of The New Zealand Institute of Legal Executives
DATE: June 2013
AUTHOR: Andrew Johnstone, APEARS, Sydney, Australia

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