The Family Provision Act (1982)(FPA) allows the court to designate property as “notional estate” and make Orders with respect to notional estate in order to satisfy an order for provision in claims by an eligible person.
The sections of the FPA which deal with notional estate amount to anti-avoidance provisions.
To be treated as notional estate property must be so designated by the Court. The property may be designated as notional estate:
- if it is the subject of a “prescribed transaction” (section 22);
- even where the estate or some part of the estate has been distributed (section 24);
PRESCRIBED TRANSACTIONS
What constitutes a prescribed transaction is found in Section 22(1). The definition is general and wide so as to allow the Court to exercise its discretion to cover situations where a person transfers property to another or fails to take some action so the property becomes held by another, for example, failing to sever a joint tenancy.
The purpose is to allow the Court to “claw back” property disposed of by a testator in his/her lifetime or where a testator fails to take a step to ensure that property over which a testator has control in his/her lifetime becomes an asset of his/her estate. The court may designate the property as notional estate (section 23) if the prescribed transaction:
(a) took effect within 3 years before death and was entered into with an intention, wholly or in part, of denying or limiting, wholly or in part, provision for a particular claimant or any other eligible persons; or
(b) took effect within a period of 1 year before death and was entered into at a time when the deceased person was under a moral obligation to make provision for any eligible person which was substantially greater than any moral obligation of the deceased person to enter into a prescribed transaction; or
(c) took effect or is to take effect on or after the death of the deceased person.
Property relating to a transaction which took place more than 3 years before the death of the deceased person cannot be designated notional estate.
Where the transaction took place more than 1 year but less than 3 years before death, the claimant must establish not only the fact of the transaction but also that it was entered into with the intention (wholly or in part) of limiting or denying (wholly or in part) provision not only for that claimant but also for any other eligible person.
Where the transaction was entered into less than 1 year before death, the complainant must establish not only the fact of the transaction, but also that the deceased person had a moral obligation to the Claimant or any other eligible person which was “substantially greater than the moral obligation” of the deceased person to enter into the transaction.
The time when a prescribed transaction takes effect is an important consideration.
EXAMPLES OF PRESCRIBED TRANSACTIONS
JOINT TENANCIES – an interest in property held by the deceased as joint tenant with another (or others) may be designated notional estate if the deceased fails to sever the joint tenancy prior to death.
In other words:
- the court can “back date” the severance of the joint tenancy to avoid the property automatically passing to the surviving join tenant;
- this has the effect of ensuring the property remains available to those the Court considers to be eligible to benefit from the estate of the deceased.
SUPERANNUATION BENEFITS – where the deceased nominates a person other than the administrator of the deceased’s estate or fails to nominate a beneficiary, and the trustees of the superannuation scheme pays the benefits or part thereof at the trustee’s discretion and not to the estate, the Court can intervene.
The court will not designate property as notional estate unless it is satisfied:
- that an order should be made in favour of a claimant; and
- the estate of the deceased, other than the notional estate, is insufficient to allow the making of an order, or that by reason of the existence of other eligible persons or the existence of special circumstances, such an order should be made.
Even if these two preconditions are met and there is property that may be designated notional estate the court may not make an order designating property as notional estate until it has considered:
- the importance of not interfering with reasonable expectations in relation to property;
- the substantial justice and merits involved in making or refusing to make the order;
- any other matter the court considers relevant.
The wide definition of property and the intention of the FPA to ‘claw back’ prescribed transactions can make it difficult for a testator to deny provision to a person to whom the testator has a relevant moral obligation unless the transaction took effect more than 3 years before death.
Even a contract entered into before that time may be held to have been entered into immediately before and to take effect on the death of the testator if the recipient of the property gave no valuable consideration.
If this area of the law sounds difficult, it is. What we have set out above is only the briefest of outlines of how the law operates in this area. As explained above, the Court has extensive powers to redistribute an estate, and a wide discretion in deciding how this is to be done. This is why you need a lawyer:
- who has run many cases in this jurisdiction and
- has the experience to be able to advise you how far the Court might go.
Dominic Wilson, a partner with Craddock Murray Neumann, has the necessary experience and can provide honest and practical advice to anyone who needs help with a will or an estate, whether to defend the will or estate from attack, or to assist those for whom greater provision should have been made. For assistance, phone Dominic on 8268 4000.