Notional Estate – Transfer of assets by persons who subsequently die

In a “normal” situation when a person passes away, their Last Will and Testament discloses the deceased person’s intentions for the distribution of their assets. However a Will only deals with the assets that a person has, or over which a person has control, as at the date of that person’s death.

According to TERRY MORGAN, there are, however, provisions which enable a Court to treat assets which have been disposed of by the deceased person prior to their death as part of that deceased person’s estate.

The circumstances in which a Court is able to treat property which has been previously disposed of by a person who has since died are dealt with in the consideration by a Court of a family provision claim.

A family provision claim is a where a person “contests a will” by making a claim to the Court that, notwithstanding the terms of a deceased person’s Will, that person is entitled to be awarded part of the deceased person’s estate.

For example, in circumstances where a person makes a Will and does not make provision for a child and that child subsequently makes an application to a Court for part of the deceased person’s estate to be paid to that child.

In the circumstances of such a family provision claim the Court may be able to consider, as part of the deceased person’s estate, certain property which the deceased person has already disposed during his or her lifetime.

There are a number of different types of transactions which are able to be considered by a Court as being part of the person’s estate. If the court makes such an order then the asset is declared to be “notional estate”. An example would be a parent gifting a house and land to a child prior to the death of the parent.

The essence of a transaction which attracts the provisions of notional estate are transactions where there is either no consideration or less than full consideration paid to the deceased person who has transferred or disposed of the asset.

There are time limits for transactions which a Court may consider property to be notional estate.

The time limits are:-

(a) A transaction that took effect within three years before the date of the deceased person’s death and was entered into with the intention, wholly or partly, of denying or limiting provision being made out of the estate of the deceased person for the maintenance, education or advancement in life of any person who is entitled to apply for a family provision order;

or

(b) A transaction that took effect within one year before the date of the death of a deceased person and was entered into when the deceased person had a moral obligation to make adequate provision, by Will or otherwise, for the proper maintenance, education or advancement in life of any person who is entitled to apply for a family provision order which was substantially greater than any moral obligation of the deceased person to enter into the transaction.

For example, if a parent has four children and transfers land to one of his or her children with no consideration being paid by the child.

If one or more of the other three children commence an application in Court for a family provision order then, if it could be established that the reason for transferring that property was so that the property would not be part of the estate, the Court could declare that property be notional estate. The property would then be available to be divided between the children making the family provision claim.

If the property transferred by the parent in the above illustration was the only major asset of the parent and the parent died within twelve months of that transfer then pursuant to paragraph (b) above that property would be considered as part of the assets of the parent for a Court to take into account when making a family provision order in relation to any of the other three children.  In this scenario the intention of the parent when transferring the property does not matter.

Transferring property to a beneficiary during your lifetime is a good way of preventing a person contesting your estate. But you must be mindful of the above time limits and if you are transferring land then stamp duty will be payable.

Baker Love Lawyers has been assisting generations of Novocastrians with their estate planning needs, contesting wills, and assisting with estate administration. If you feel you have grounds to contest a will, contact one of our Estate Planning experts on (02) 4951 5766.