How vulnerable is your client’s will?

New family provision legislation in New South Wales deepens the divide between the states and territories when it comes to who can make a claim for provision from a deceased person’s estate and what assets are available to meet that claim. The implications will be felt not only by estate planning advisers in New South Wales, but also by advisers nationally whose clients have moved interstate or own property in other states or territories.

The idea that a person should be able to make a will and determine how his or her property is dealt with after death is one that many will makers hold dear. Family provision legislation erodes this testamentary freedom by giving the court the power to vary the terms of a will.

The first family provision or ‘testator’s family maintenance’ laws were enacted in New Zealand in 1900, to prevent widows and orphans becoming a burden on society if their husbands/fathers failed to properly provide for them.

One by one, the Australian states enacted their own versions of the legislation. Over time, the legislation was modified and reformed and the differences between the states became increasingly marked. As people migrated between states and acquired property, these differences led to additional difficulties, costs and delays in dealing with deceased estates across state boundaries.

In 1991, the Attorneys-General initiated the Uniform Succession Laws Project and created a National Committee for Uniform Succession Laws to bring some consistency to the law relating to family provision, as well as wills, probate, intestacy and administration of estates.

In the area of wills, there has been a degree of success in achieving consistency between the states. Family provision, however, has been another story entirely.

A report on proposed uniform legislation was produced in 1997 and a supplementary report in 2004 included model legislation prepared by the New South Wales Parliamentary Council’s Office.

Not a single state or territory has adopted the model legislation, and in New South Wales the Succession Amendment (Family Provision) Act 2008 (NSW), scheduled to commence on March 1, 2009, introduces a regime more different than ever to the rest of the country.

In particular, there are significant differences in terms of who is eligible to apply for provision and what assets are available to meet a claim.

Can Ben make a claim on Rosanna’s estate? If the estate is in Queensland, the answer is yes. If the estate is in New South Wales, the answer is no, unless Ben was at some time a member of Rosanna’s household and dependent on her or was in a close personal relationship with Rosanna.

In all jurisdictions Ben could have made a claim on James’ estate, but the court would have weighed Ben’s financial circumstances and needs against Rosanna’s in determining what, if any, provision should be made for Ben.

If James wanted to make sure that Ben would not make a successful claim on his estate, what could he do?

In Queensland, where there is presently no power to designate notional estate, James could prevent a successful claim by holding all of his assets jointly with Rosanna so everything would pass by survivorship and there would be no estate on which Ben could make a claim. In relation to superannuation, James could make a binding nomination that his death benefit be paid directly to Rosanna and not pass through his estate.

In New South Wales, ‘notional estate’ provisions mean that jointly held assets (or half their value, at least) could be available to meet claims. Similarly, the court has the power to designate superannuation death benefits as 'notional estate'.

It is clear that sound estate planning advice for a client in Queensland may not be good advice for a client in New South Wales, and vice versa. And potential cross-jurisdictional issues add further layers of complexity.

Who can make a claim?

Unlike every other jurisdiction in Australia, in Victoria there are no prescribed categories of eligible claimants (such as spouses, children, dependants, etc).

The existence of a moral obligation on the part of the deceased to make a provision for the claimant’s maintenance and support will be looked at in each case in light of a number of factors set out in section 91 of the Administration and Probate Act 1958 (Vic), including the relationship of the claimant to the deceased.

As well as the traditional categories of spouses and children, successful claims have been made in Victoria by, for example, a foster daughter of the deceased, a niece by marriage of the deceased, and an adult brother of the deceased.

In other states, people who wish to make a claim on an estate must show that they fit into a category of eligible applicant; for example, they are the spouse or de facto partner or child of the deceased.

In some states, other family members are also eligible to make an application. By way of example, claims can be made by stepchildren in Queensland and Tasmania, by grandchildren in the Australian Capital Territory, Northern Territory and Western Australia, and by parents in the Australian Capital Territory, Northern Territory, South Australia, Tasmania and Western Australia.

In New South Wales, the categories of eligible applicants for family provision are set out in section 57 of the Succession Act 2006 (NSW) (as amended). The categories are:

(a) a person who was the wife or husband of the deceased person at the time of the deceased person’s death;

(b) a person with whom the deceased person was living in a de facto relationship (including a same sex relationship) at the time of the deceased person’s death;

(c) a child of the deceased person or, if the deceased person was at the time of his or her death a party to a domestic relationship, a person who is for the purposes of the Property (Relationships) Act 1984 (NSW) a child of that relationship (note: this does not include a stepchild or foster child);

(d) a former wife or husband of the deceased person;

(e) a person:

(i) who was, at any particular time, wholly or partly dependent on the deceased person; and

(ii) who is a grandchild of the deceased person or was, at that particular time or at any other time, a member of the household of which the deceased person was a member; and

(f) a person with whom the deceased person was living in a close personal relationship at the time of the deceased person’s death.

A ‘close personal relationship’ is defined as a close personal relationship (other than a marriage or a de facto relationship) between two adult persons, whether or not related by family, who are living together, one or each providing the other with domestic support and personal care.

In New South Wales, a stepchild is only eligible to apply for provision if he or she fits into one of the other categories of applicant — for example, as a person who was dependent on the deceased and a member of the deceased’s household.

What assets are available to meet a claim?

The model legislation proposed by the uniform succession law report includes ‘notional estate’ provisions whereby certain assets outside the estate of the deceased can be clawed back as ‘notional estate’ to meet claims that cannot be satisfied from estate assets. To date, no state or territory other than New South Wales has gone on to adopt the ‘notional estate’ provisions.

So, except in New South Wales, the assets available to make provision for a claimant are confined to the estate of the deceased. This means that certain assets will be unavailable to meet family provision claims, namely:

1. Jointly held assets. These do not form part of the deceased’s estate as they pass by survivorship to the other joint tenant;
2. Assets held in trusts or companies. Assets of a discretionary trust, whether controlled by the deceased prior to death or not, will not form part of the estate of the deceased. While assets of a unit trust or company will not form part of the deceased’s estate, units or shares owned by the deceased will fall into the estate;
3. Superannuation death benefits not paid to the estate. At the discretion of the trustee of the fund or in accordance with a binding nomination made by the deceased, superannuation death benefits may be paid either directly to one or more dependants of the deceased, or to the legal personal representative of the deceased. Only in the latter case will the death benefits form part of the deceased’s estate; and
4. Assets transferred to third parties during the lifetime of the deceased.

In New South Wales, as well as having access to the estate of the deceased, the concept of notional estate enables the court to make orders affecting certain property that does not form part of the deceased’s estate, namely property that has been the subject of a ‘relevant property transaction’ that either:

took effect within the three years prior to death and was entered into with the intention of denying or limiting provision for the eligible person;
1. took effect within one year prior to death at a time when the deceased had a moral obligation to make provision for an eligible person; or
2. took effect on or after the death of the deceased.

Sections 75 and 76 of the Succession Act 2006 (NSW) as amended sets out what constitutes a ‘relevant property transaction’. Relevant property transactions are transactions made for less than full valuable consideration, resulting in assets being owned by another person or subject to a trust.

Significantly, relevant property transactions cover omissions as well as positive acts. This means, for example, that a failure to sever a joint tenancy immediately prior to death may be a prescribed transaction, as may a failure to ensure that superannuation death benefits are paid to the legal personal representative of the estate.

Cross-jurisdictional issues

The general common law principle in determining the jurisdiction for a family provision matter is that movable property will fall under the jurisdiction of the place where the deceased was domiciled (which will often, but not always be, the same as the place where he or she was residing at the time of death) but immovable property (real estate) will fall under the jurisdiction of the place where it is located.

This position has been changed by legislation in two states — South Australia and New South Wales. In South Australia, section 7(1)(a) of the Inheritance (Family Provision) Act 1975 (SA) extends the operation of that Act to cover personal property situated in South Australia but owned by a non-domicile.

In New South Wales, section 64 of the Succession Act 2006 (NSW) (as amended) provides that “a family provision order may be made in respect of property situated in or outside New South Wales when, or at any time after, the order is made, whether or not the deceased person was, at the time of death, domiciled in New South Wales”.

So even if your client does not live in New South Wales, it is unwise to assume that the New South Wales family provision regime and the concept of notional estate are irrelevant.

For estate planning advisers, the ability to provide appropriate advice to clients in relation to the prospects of claims being made against their estates requires more than a working knowledge of the local legislation.

Enquiries need to be made to determine whether clients have moved from other states or own property in other states and it will be increasingly necessary to collaborate with specialist legal advisers in other jurisdictions.

Jenny McMillan is the head of estate planning with Trust Company. She is a New South Wales Law Society accredited specialist (wills and estates) and a member of the Law Society’s Elder Law and Succession Committee.