From the State that generously now offers intergenerational stamp duty exemption for family farms being transferred into trusts ( since March 2022), providing significant succession planning opportunities for farming families, we also have the unique notional estate provisions.
So, what is “Notional Estate”?
In simple terms, the “notional estate” regime is a legal provision unique to NSW. It grants the NSW courts the power to designate certain assets as part of a deceased person’s estate, even if those assets are not legally owned by the deceased at the time of death. This can occur under specific circumstances during the administration of an estate.
Why Does It Exist?
This rule was introduced to ensure fairness in the distribution of a deceased person’s assets. It aims to prevent situations where an individual might intentionally rearrange their assets to avoid legal responsibilities or to disadvantage certain beneficiaries, such as family members who are potentially eligible, under Family Provisions legislation (ie a disputed Estate administration) entitled to a share of the estate.
How Does It Work?
Application: The notional estate rules can be applied when someone contests a will or when the court believes the estate does not adequately provide for certain eligible individuals, like unloved spouses or children.
Identifying Assets: Assets that the deceased person had control over or benefited from shortly before their death can be considered. This might include properties transferred to a trust or assets given away before death. The notional estate provisions have also been applied where a testator altered the form of property ownership, joint tenancy with a chosen future owner of that property, so avoiding the testators interest being included as an asset of his estate …and thus within the reach of family provisions.
Court’s Power: The court can declare such assets as ‘notional estate’, making them available for claims against the estate. This means they can be included in the assets to be distributed to beneficiaries as if they were part of the deceased’s owned estate.
Implications for Estate Planning
This makes estate planning in NSW unique from other jurisdictions. It’s important to understand that even if you no longer own certain assets at the time of your death, they might still be pulled back into your estate. Effective estate planning should therefore consider not only what you own but also what you have previously owned or controlled. Critically, the sooner you effect transfers of assets, and the longer before your Will is read, less will be the likelihood of these provisions being applied in a contested estate. After 3 years from such transfers, generally no such claim will arise.
Our Role
As your trusted advisors, we are here to help you navigate these complex rules and to help you develop strategies to deliver the Protective Estate Planning outcomes you seek for future generations of your chosen beneficiaries and bloodline.
DISCLAIMER:
These notes and preliminary recommendations are in summary form prepared exclusively for our clients, to identify scope and alert you to risks, opportunities, taxation implications and other possibilities. They are not comprehensive and therefore should not to be used in isolation as a substitute for detailed advice or as a basis for formulating family wealth protection or protective estate planning decisions..