What is Notional Estate?

The term "notional estate" refers to assets that do not form part of your estate at the time of your death but can be included in your estate for the purposes of family provision claims.

In NSW, the concept of notional estate is governed by the Succession Act 2006 (NSW). Notional estate includes assets that you have transferred to others or otherwise dealt with in a way that removes them from your estate, but which can be "clawed back" into your estate for the purpose of satisfying a family provision claim. The principle behind this concept is so eligible claimants including family members are not unfairly disadvantaged by actions taken that depleted the value of a deceased estate. It can also provide the Court flexibility to bring assets that would normally be quarantined from the estate back allowing the estate to be distributed in line with community expectations.

How Does Notional Estate Work?

Firstly, it should be remembered that notional estate is only available to a person bringing a family provision claim under the relevant provisions in the Succession Act.

Secondly, notional estate is only available to a person seeking an order in NSW.

Thirdly, for property to be available for a notional estate order, there must have been a relevant transaction by the deceased person before their death, transferring an asset to another person or trust for less than valuable consideration.

The court has the power to designate certain assets as part of the notional estate if it believes that the deceased person made arrangements that diminished their estate and denied assets to eligible claimants of a family provision claim. This can be even if there was no actual intention to deplete the estate. Here are some key points to understand:

1. Transactions Within Three Years:
   • Any transaction made within a period of three years prior to the deceased's person’s death, done with the intention of denying or limiting provision of an eligible claimant for family provision, can be included in notional estate.
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2. Transactions Within One Year:
   • Any transaction made within a period of one year prior to the deceased's person’s death, done, regardless of intent, can be included in notional estate if it had the effect of denying or limiting provision to an eligible claimant for family provision
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3. Assets held as joint tenants with another:
   • Assets owned by the deceased before their death with another as joint tenants can be included as notional estate as the ownership of the asset vests in the co-owner/s immediately after death under the rule of survivorship. These assets can be included as notional estate regardless of when the transaction took place.
4. Superannuation:
   • Superannuation that does not form part of the estate but is left to a dependant directly can also be included in notional estate. This is regardless of when the superannuation funds were paid into the fund and irrespective of whether or not there is a binding death nomination.

Examples:

John purchases a house with his mum as joint tenants. Later on he moves in with his girlfriend and they live as a de-facto couple. 5 years later he dies. John’s share of the house can be included as notional estate to meet the needs of his de-facto partner’s family provision claim.

Mary decides to sell her business to her daughter for $1.00 as she doesn’t want her son to inherit it. If Mary dies within 3 years, the business can be included as notional estate for it’s true value.

Gary nominates his wife as the recipient of his superannuation fund with a binding death nomination. Even though Gary dies within 3 years and before the nomination lapses his child of a previous relationship lodges a family provision claim and can include the superannuation as notional estate.

Notional estate is a vital concept to be aware of you live in or own assets in New South Wales. It was legislated to protect eligible family provision claimants so they are not unfairly disadvantaged by actions taken that deplete the value of a deceased estate. Understanding how notional estate works can help you plan your estate more effectively and avoid unwanted outcomes. If you have any questions or need assistance with your estate planning, it is advisable to seek professional legal advice.

Contact us for a free thirty-minute consultation with a lawyer.

Any information on this website is general in nature and should not be taken as personal legal advice. We recommend that you speak to a lawyer about your personal circumstances.

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