The Succession Act 2006 allows the Court to designate an asset not currently part of the deceased estate as “notionally” part of the deceased estate. For property eligible for a notional estate claim, the deceased must have owned the property in the last three years. Property, in this instance, refers to all types of assets, including real estate, life insurance benefits and superannuation.
The “notional estate” of a deceased person is defined in s 3 of the Succession Act to mean property designated by a notional estate order as the notional estate of the deceased person. The term “notional estate order” means an order made by the Court under Chapter 3 designating property specified in the order as notional estate of a deceased person.
A notional estate claim is only possible following the issue of a Family Provision Order. Section 79 of the Succession Act 2006 provides for a notional estate order following the grant of probate and distribution of the estate. The Court will only entertain a notional estate claim when the actual estate has insufficient assets, or there are other eligible claimants to a family provision order from the actual estate. The Court also has the latitude to allow notional estate claims under “special circumstances”.
Section 78 of the Succession Act permits the Court to designate the property as notional estate, but only for a family provision order under Part 3.2 or for a costs order if making a family provision order in favour of the applicant.
Section 80 of the Succession Act provides that the Court may, on application by an applicant for a family provision order or on its motion, make a notional estate order designating property specified in the order as notional estate of a deceased person if the Court is satisfied that the deceased person entered into a relevant property transaction before their death and that the transaction is a transaction to which this section applies.
For the asset to be designated notional estate, a relevant property transaction must have transferred the property to someone else without appropriate financial compensation. An unimpeachable property transaction involves “full valuable consideration” by exchanging an asset for either money or an equivalent asset; if the deceased transferred property for a nominal fee or as a gift, it would not constitute full valuable consideration.
There is another type of asset that qualifies as notional. An asset may be classified as notional if held in a structure that is not eligible for inclusion in the estate but is still effectively controlled by the deceased. A defining characteristic of this category of assets is that it is because of the deceased’s omission or failure to act not already included in the actual estate. For example, a notional estate claim can consist of:
- Jointly held property where the ownership passes to the surviving owner upon the co-owners death; considered eligible for notional estate claims because the deceased could have chosen to sever the joint tenancy before their death.
- Superannuation death benefits and attached insurance policies that have a binding death benefit nomination, as the deceased could have chosen to nominate the legal personal representative of the estate, thereby assigning the benefits to the deceased estate.
- Assets held in family trusts if the deceased had the authority to assign all the capital in the trust to themselves before their death.
The Court cannot make a notional estate order because the deceased arranged their finances this way. There must be evidence that the transfer directly or indirectly disadvantaged the claimant, the deceased or a principal party to the transaction; additionally, if someone acted or did not act in a way that prevented the claimant, deceased or another principal party from benefiting.
The Court will decide on the claim based on whether the reasons for granting the order are more persuasive than the general imperative to not interfere in the existing provisions of the estate. They will also consider the merits involved in the specific case and whether justice is served by making the order, as well as any other matters that they may consider relevant.
Once the Court has designated notional estate property, the asset will be dealt with effectively as if it is actual estate property. A notional estate order extinguishes the rights of the former property owner to the extent outlined in the order.
Time limits for notional estate claims differ depending on the intent of the deceased when they made the transfer and the degree of moral responsibility the deceased had towards the claimant. A notional estate claim can only apply to:
- A transaction occurred in the last year of the deceased’s life when the deceased had a moral obligation to adequately provide for the claimant, which was more significant than the moral obligation to engage in the transaction.
- A transaction occurred after the deceased’s death; if the deceased transferred a house to their adult child for a nominal sum before their death, the child wants to sell the property after the death. The asset may be subject to a notional estate claim.
- A transaction that took place in the three years before the deceased’s death with the intent to limit provision for eligible claimants.
Background
The deceased, who was born in Shanghai, China, in 1934, died on April 5 2019 had been married twice. His first wife, Dr Gwenneth Benz, to whom he was married on March 23 1963 and with whom he had six children, died on May 6 2011. The deceased married his second wife, Erlita (the Executrix), on June 10, 2012.
The Executrix had previously married Colin Armstrong, with whom she had one daughter (Maree), now aged 39. Colin and the Executrix divorced in 1985.
The Executrix met the deceased while working as an assistant at Colin’s service station in Sydney. The couple began a secret relationship lasting 15 years until Gwenneth discovered the affair.
Gwenneth remained married to the deceased until she suffered a fall at the family home in 2010. Following this, Gewenneth was moved to a nursing home, and the deceased and the Executrix began living together; little Gwenneth died in 2011. A little over a year following Gwenneth’s death in 2011, the deceased and the Executrix married.
The Whitefold Trust
The Whitefold Trust is a discretionary family trust established by a deed dated April 15, 1977. The Eligible Beneficiaries of the Whitefold Trust, as defined, are the deceased, his late wife, Gwenneth, and their children and grandchildren.
Clause 17(a) of the Trust Deed gave the deceased the power during his lifetime to remove any trustee and to appoint a new trustee. In 2012 (the year the deceased married the Executrix), Harly Pty Ltd (Harly) was appointed as trustee of the Whitefold Trust.
Unlike individuals or companies, a discretionary trust has no separate legal identity. A discretionary trust is a fiduciary arrangement between one party (the trustee) to hold assets on behalf of a class of beneficiaries. Because of this, assets held in a trust are not personal property; therefore, they do not form part of the deceased estate.
The applicants
The deceased was survived by the Executrix, his six adult children from his first marriage
- Yvonne Michele Tridgell (known as Michele),
- William John Benz (known as John),
- Robert Bruce Benz,
- Anna Rosalba Benz,
- Andrew James Benz
- Catherine Jean Benz, and
- his step-daughter, Maree.
Michele and Robert have not brought a family provision claim, but the applicant notified them of the proceedings. Maree (who is currently living in one of the properties formerly owned by the deceased – the Pymble Property) similarly does not claim family provision from the deceased’s estate.
The Will & Estate
The deceased died in 2019, aged 84, with an estate valued at over $20 million.
The deceased’s will left the Executrix, the family home in Sydney, the medical surgery, two other houses in Sydney, several cars, a valuable art collection and shares worth several million dollars.
His six adult children were left very little. Significantly, the deceased had named the Executrix the nominated death beneficiary of a superannuation fund worth over $12.9 million.
Four of the deceased’s children made applications for family provision, claiming that their father had not made proper provision for them in his Will – and giving little reason for leaving almost all of his estate to the Executrix.
The notional estate
The updated Affidavit of Administrator, sworn October 11 2021, identifies the following property that may be a notional estate:
(i) a one-half interest in the Wahroonga Property valued at $1,281,500 as of September 30 2021, per the appraisal by National Property;
(ii) a one-half interest in the Pymble Property valued at $1,140,000 as of September 30 2021, per the appraisal by National Property;
(iii) 23,889 shares in National Australia Bank (now valued at $650,736.36); (iv) 17,148 shares in Westpac Banking Corporation (now valued at $431,615.11).
The Wahroonga and Pymble Properties passed by survivorship on the death of the deceased (the deceased having transferred to the Executrix an interest in those properties as a joint tenant with him after Gwenneth’s death and in around September 2000, respectively);
The deceased transferred the NAB shares to the Executrix on January 10 2019, and the Westpac shares on January 23 2019 (these being the two sets of shares amounting to $1.1 million – NAB shares $605,136; Westpac shares at $431,615).
The plaintiffs say that the shares transferred from the deceased to the Executrix inter vivos within the period have a present value of about $1,100,000 (and point out that there has been no disclosure of any dividends earned on those shares).
The plaintiffs say that the value of the Wahroonga Property is $5,125,000 (half being $2,562,500) and that the value of the Pymble Property is $2,325,000 (half being $1,162,500).
The Executrix, on the other hand, puts the value of the Wahroonga Property at $2,325,000 and the value of the Pymble Property at $2,238,000 (there is little difference between the valuations for the Pymble Property), with half interests in each being readily calculable.
The plaintiffs submit that the Whitefold Trust falls within the description of “a paradigm case for the intended application of the notional estate provisions” (noting that Executrix appears to accept that the assets of the Whitefold Trust can be designated as notional estate).
The 2020 Financial Report disclosed assets of over $1,800,000 and liabilities of about $1,500,000. Given the estate liabilities, the costs incurred in these proceedings and those involving John and the Whitefold Trust, there is likely to be a deficit in the Whitefold Trust, with the residue of the estate wholly exhausted.
The executrix, in her updated Administrator’s affidavit of October 11 2021, deposes her opinion that the proceeds of the deceased’s superannuation fund do not form part of the deceased’s notional estate.
The deceased nominated the Executrix through the superannuation binding death benefit nomination as the recipient of his Superannuation death benefit of over $12,900,000.
On the applicant’s calculations (and including the death benefit as the potential notional estate), that would mean that the amount capable of designation as a notional estate would be in the order of $17.9 million (or $18.3 million if it included three-quarters of the Bondi Junction Property as notional estate opposed to the deceased’s transfer of one-quarter to the Executrix two weeks before his deceased’s-death), comprised of half of the Wahroonga Property at $2.562 million; half of the Pymble Property at $1.162 million; (at least) one-quarter of Bondi Junction Property valued at $177,000 (or three-quarters valued at $531,000); the “Christmas gift” shares valued at $1.1 million; and the death benefit superannuation funds valued at $12.9 million (with distribution in specie to the Executrix of shares worth about $9.2 million).
The decision
The court will consider the financial situation of the person who is applying for a family provision order, any other person who has made a similar application, and any beneficiaries of the deceased person’s estate. This includes their current and future financial needs and earning capacity.
The plaintiffs were awarded under s 59 of the Succession Act 2006 (NSW) further provision out of the deceased estate estate in the following amounts:
- Anna $1.9 million.
- Catherine and Andrew $900,000
The amounts differed, depending on the needs of each of the children. As the deceased’s wife, the Executrix kept most of the estate, with the estate paying costs. Each plaintiff has estimated around $100,000 or more for their costs. The Executrix’s costs are estimated at around $100,000, bringing the total costs to the end of the hearing to about $400,000.
If the deceased had made proper provision for his children in his Will while leaving the Executrix a substantial part of his estate, the parties could have avoided an expensive court case.