Does gifted property form part of the deceased’s notional estate?
It is not uncommon for a person to give away or “gift” their property before they die in an attempt to stop a particular person, usually an adult child, from being able to get possession of their property by contesting their will. The motivation being if a person does not own certain property at their death, then it does not form part of their estate assets, and thereby no claim may be made upon it.
If this occurs in New South Wales, in certain circumstances a family provision claim under the Succession Act 2006 enables the Court to make an order that declares the property as part of what is referred to as the deceased’s notional estate. A deceased’s notional estate is comprised of all the assets which are returned to the estate after death.
A prescribed transaction includes a situation in which property is transferred from one person to another without the receiver paying the proper price (market value) or not exchanging something of equal value.
The time of a prescribed transaction is very important for property to be declared as part of the notional estate.
Less than 1 year before death
If the prescribed transaction was structured as a “gift” from the deceased to another person, and this occurred within 12 months before the testator died, the Court can rule that the property forms part of the notional estate provided that:
At the time the gift was given the deceased had a moral obligation (which would need to be proved) to make adequate provision for another eligible person; and
The moral obligation to the other person was greater than any moral obligation to give the gift in the first place.
Between 1 to 3 years before death
If the prescribed transaction occurred more 1 year, but less than 3 years prior to death, it must be proved that the property was the subject of a prescribed transaction entered into by the deceased specifically for the purpose of avoiding a family provision claim.
More than 3 years before death
If the prescribed transaction occurred more than 3 years before the testator died it is virtually impossible to have the property declared as part of the deceased’s notional estate.