Australians generally enjoy testamentary freedom. This means that Australians can leave their assets to whomever they want in their wills. However, this freedom is not without some limits.
Family Provision claims
Legislation in each Australian State and Territory allows the Supreme Court of that jurisdiction (“Court”) to effectively override the terms of a will that does not adequately provide for certain ‘eligible persons’ if those persons make a ‘Family Provision claim’. While the list of eligible persons who can make a Family Provision claim differs in each jurisdiction, there are some common categories such as spouses and children.
Minimising Family Provision claims
Where a will-maker (also called a ‘testator’) wants to exclude an eligible person from his or her will and is concerned that the eligible person may make a Family Provision claim, one strategy that could be utilised to minimise the potential Family Provision claim is for the will-maker to minimise the assets that the will-maker owns in his or her personal name. This could be achieved by either gifting assets to the will-maker’s intended beneficiaries while the will-maker is still alive (sometimes called an ‘inter vivos transfer’) or by choosing to have assets owned within trust or company structures, since these assets would not form part of the will-maker’s estate.
Notional Estate orders
However, New South Wales (“NSW”) is currently the only State in Australia where such a strategy may not work. This is because NSW legislation allows the Court to designate assets that are not owned by the will-maker at his or her death (e.g. superannuation, trust assets) as part of his or her estate for the purpose of making provision for an eligible person (known as a ‘notional estate order’). There are, of course, several strict requirements that must be satisfied before the Court would make a notional estate order. For example, in the case of an inter vivos transfer, the transfer must have occurred within three years before the will-maker’s death to a transferee who did not pay the will-maker market value for the asset.
Domicile: where you live matters
But what about will-makers who do not live in NSW but may have potential notional estate (e.g. trust assets or superannuation) located in NSW? The recent case of O’Donnell v O’Donnell [2022] NSWSC 1742 involved a determination as to whether a notional estate order could be made where a will-maker does not live in NSW.
In this case, the wife of the deceased will-maker made a Family Provision claim since she was not provided for in her husband’s will. The will-maker owned more than $2 million of assets in his personal name but had approximately $30 million of assets held in trusts that he controlled. Unfortunately for the wife, the Court held that the will-maker was domiciled in the ACT since he spent around 70% of his time there and had significant business connections in Canberra. This meant that, despite the Court ordering that the wife receive all of the will-maker’s personal assets, the Court did not have jurisdiction to make a notional estate order in respect of the trust assets.
Interestingly, the Judge who decided this matter lamented the restrictions imposed by a will-maker’s domicile and called for reform in this area of law:[1]
“The outcome of these proceedings causes me respectfully to recommend that all of the authorities in this country who have a role in law reform revisit the question of whether the family provision legislation in each jurisdiction should empower the courts of those jurisdictions to designate notional estate of deceased persons and to explore the possibility of introducing substantially common legal provisions for that purpose. Kalpana [the wife] has succeeded in obtaining an order for further provision out of the estate of the deceased, but not for the amount that I have determined would have been fair to her. Given all of the circumstances of the case, that is because fairness could only have been achieved if the Court had been empowered to make an order designating part of the property of the O’Donnell group [the trust assets] as notional estate of the deceased. The absence of that power turned on the issue of the domicile of the deceased at the date of his death. The finding that the deceased was domiciled in the ACT was fatal to the prospect of fairness being achieved in this case.”
Lest will-makers outside NSW think the notional estate provisions do not apply to them, the Judge’s comments above indicate that we may see notional estate provisions broadened in the coming years to allow courts greater power to make provision for eligible persons.
If you would like further advice regarding Family Provision claims or notional estate orders, please contact us to obtain advice as to your rights.
Max Williams,
Special Counsel
[1] O’Donnell v O’Donnell [2022] NSWSC 1742 at [549]-[550].
