NSW Family Provision Legislation

In NSW (but not in other states) the Supreme Court has the power to make notional estate orders in relation to deceased estates.  This power can be used to declare all or part of the deceased’s super benefit as notional estate.  Such an order overrides any binding death benefit nomination and also overrides any trustee discretion.

A recent case has demonstrated that these powers can be very wide reaching.

Essentially, such orders can be made where a person (who has satisfied the necessary eligibility criteria) can establish to the Court’s satisfaction that inadequate provision was made for them from the estate of the deceased member and that the actual estate is insufficient to make adequate provision or the actual estate has already been disbursed.

In this particular case, the deceased left his estate to his friend who was also the executor.  After paying funeral and burial expenses, the net value of the estate was about $79,000.  As the executorial duties had been performed, the money was applied by the executor for his personal use and enjoyment.

The deceased’s two daughters then applied to the NSW Supreme Court for a family provision order and also for a notional estate order in respect of the friend’s own superannuation fund.

The two daughters were successful and family provisions orders were made for them to the extent of about $10,000 and $8,000 respectively with $5,000 to reimburse their legal fees.

The significant point of the case is that the Court made a notional estate order in respect of the friend’s own superannuation benefit.  The Court held that a notional estate order can be made in relation to the property of the friend, as the friend had received a benefit from the estate.  In this particular case the Court was inclined to make such an order as the friend had received a benefit and the friend was aware of the existence of the two daughters and should have reasonably anticipated that the two daughters were likely to seek a family provision order.  There seems to be an undercurrent in the Court’s reasoning that the friend purposefully consumed the $79,000 to frustrate any claim by the daughters.

The order of the Court to declare the friend’s property as notional estate could have been made in respect of any property of the friend.  Given that the friend’s property was a 99 year lease in a retirement village, a car and a $135,000 balance in the Navigator Personal Retirement Fund, the Court made the notional estate order in respect of the superannuation fund as this was the property which was most amenable to such an order.

The order was that an amount of $22,415 of the $135,000 super benefit be designated as notional estate.

The significant issue from the Case is that the Court held that there is nothing in the relevant legislation which requires property designated as notional estate to be the same property as was distributed from the estate or property into which the distributed estate can be traced.  (Paragraph 190 of the judgement.)

To quote from the judgement at paragraph 191  “It follows, then, that if the Court is satisfied that someone (the Defendant) has received a distribution from the deceased’s estate (the distributed property), it is possible to designate as notional estate, property of that person (moneys in the Navigator Personal Retirement Fund), even if that property is not something into which it would be possible to trace any specific property of the deceased”.

Another interesting point from the Case is that the deceased’s former wife, who is now a barrister, acted for the two daughters on a pro bono basis.  Consequently the legal fees for the daughters were surprisingly small.

Finally, it is interesting to consider the position of the trustee of the Navigator Personal Retirement Fund when it received a copy of the Court Order.  Possibly, the friend is of an age that his benefit is entirely unrestricted non-preserved so that the Court Order could be satisfied by a partial cashing out of his benefit.  However, if the benefit was preserved, how would the trustee react?  The SIS legislation does not accommodate notional estate orders.  Would the trustee refuse to comply with the order on the basis that the SIS legislation has constitutional paramountcy over notional estate orders?  This interesting legal issue is unlikely to be litigated in this Case.

Case Details:  Charnock v Handley [2011] NSWSC 1408.  The power to make notional estate orders is now set out in Chapter 3 of the Succession Act, 2006 (NSW).