An applicant for family provision seeks provision “out of the estate” of the deceased person. There is some doubt about the meaning of the word “estate” and there are differences between the statutes. In particular, in New South Wales, there is the unique concept of “notional estate” from which provision may be made.
5.1 AUSTRALIAN CAPITAL TERRITORY AND NORTHERN TERRITORY
In section 7(1) of the Family Provision Act 1969 in each Territory1 the applicant may make application for provision “out of the estate” of the deceased person.
5.2 NEW SOUTH WALES
In sections 7 and 8 of the Family Provision Act 1982 (NSW) the application is for provision to be made “out of the estate or notional estate” of the deceased. “Notional estate” is defined in section 6(1) as “property designated by the Court under sections 23, 24 or 25 as notional estate of the deceased person”. The notional estate legislation is designed to counter a substantial risk of evasion of family provision legislation.
Division 2 of Part 2 of the Act, entitled Notional Estate, embracing sections 21 to 29 inclusive, makes important provisions not found in other legislation. The provisions are lengthy and complex.2 Notional property arises as a result of a “prescribed transaction”. The following acts or omissions of the deceased or another person can in certain circumstances constitute a “prescribed transaction”:
(1) the making of a gift, directly or on trust - section 22(1);
(2) failure to exercise a power of appointment - section 22(4)(a);
(3) failure to sever a joint tenancy - section 22(4)(b);3
(4) failure to extinguish an interest under a trust - section 22(4)(c);
(5) failure to exercise a power to nominate a person as a person to whom money payable under a policy of insurance may be paid - section 22(4)(d);
(6) death of a member or participant of a body, association, scheme, fund or plan - section 22(4)(e);
(7) the entering into a contract to dispose of property from the estate of the deceased person - section 22(4)(f).
In most or all of these cases the deceased might have conducted himself or herself so that the property sought to be designated as notional estate would have become part of the deceased person’s estate.
By section 23 the Court may designate property the subject of a prescribed transaction to be notional estate of the deceased person; but it must be satisfied, amongst other things, that the prescribed transaction was one:
(i) which took effect within the period of 3 years before his death and was entered into with the intention, wholly or in part, of denying or limiting, wholly or in part, provision for the maintenance, education or advancement in life of that or any other eligible person out of his estate or otherwise;
(ii) which took effect within the period of 1 year before his death, and was entered into at a time when the deceased person had a moral obligation to make adequate provision, by will or otherwise, for the proper maintenance, education and advancement in life of that or any other eligible person which was substantially greater than any moral obligation of the deceased person to enter into the prescribed transaction; or
(iii) which took effect or is to take effect on or after the death of the deceased person.
Section 24 allows the Court to designate as notional estate any part of the estate which has been distributed.
By section 25 property which the Court may designate as notional estate cannot be removed from the Court’s jurisdiction to designate as notional estate by subjecting it to a subsequent prescribed transaction.
The Court’s power to designate property as notional estate is further limited, by section 26, by reference to the object of the legislation, that is it must have disadvantaged the estate of the deceased (or other disponer), or an eligible person.
Section 27(1) requires the Court, when an order designating property as notional estate is sought, to consider:
In addition the Court is required to give consideration to a variety of circumstances going to the value of the property sought to be designated.4
By section 28(1) the Court is prevented from designating property as notional property unless it is satisfied:
There are further restrictions in section 28, the tenor of which is to impress upon the Court that it must be satisfied as to the facts and justification for making the order.
Subject to these manifold restrictions, however, section 29 provides that to the extent that a person’s rights are affected by a designation order, those rights are extinguished.
This legislation is expertly drafted by experienced conveyancing and equity lawyers. To make it readily comprehensible to the average reader would present a formidable task to the “plain English” drafter. Nevertheless, as Young J said in Wade v Harding,5 it can require a judge “to construe what happened in a transaction that did not take place, was never even thought about by the person who notionally omitted to do it was a transaction which was for full valuable consideration in money’s worth”.
5.3 QUEENSLAND
In Queensland the Court may only make provision for an applicant out of “the estate” of the deceased.6
5.4 SOUTH AUSTRALIA
In South Australia the Court may only make provision for an applicant out of the “estate” of the deceased.7
5.5 TASMANIA
In Tasmania the Court may only make provision for an applicant out of the “estate” of the deceased.8
5.6 VICTORIA
In Victoria the Court may only make provision for an applicant out of “the estate” of the deceased.9 It is also made clear that it is the net value of the estate which is to be taken into account.10
5.7 WESTERN AUSTRALIA
In Western Australia the Court may only make provision for an applicant out of the “estate” of the deceased person.11
5.8 MEANING OF "ESTATE"
For practical reasons it is to be expected that the word “estate” in the context of family provision legislation will be given its usual succession law meaning, that is, the property which passes to the executor or administrator to be dealt with in accordance with the law of wills or intestacy as well as the law relating to the administration of estates with respect to such matters as the payment of debts. Property which cannot be considered to be part of the estate of a deceased person includes the following:
(1) Property given away by the deceased before death. In New South Wales this can be designated as “notional estate”.
(2) Property held by the deceased on a joint tenancy does not form part of the deceased’s estate. It passes to the surviving joint tenant. That is a necessary incident of the tenure of joint tenancy. The placing of property in a joint tenancy can be a major way of circumventing family provision legislation. In New South Wales property held in a joint tenancy may be designated as “notional estate” of the deceased.
(3) Property distributed in the ordinary course of the administration of the estate ceases to be a part of the estate of the deceased. Particular difficulty has been encountered where an executor appropriates part of the estate towards a trust created by the will, the executor remaining trustee. It is arguably the law that the appropriation takes the property out of the estate and subjects it to the created trust. Nevertheless the High Court of Australia held otherwise in Easterbrook v Young12 on the wording of the New South Wales legislation. But the High Court decision was not followed in Queensland in the cases of Re Burgess13 and Will of McPherson,14 the wording of the Queensland statute being slightly different from that of New South Wales.
In New South Wales property held by a trustee is not to be treated as having been distributed unless it is vested in the beneficiary.15 This appears to partially reverse Easterbrook v Young.16
Section 2(4) of the Family Protection Act 1955 (NZ) provides:
... no real or personal property that is held upon trust for any of the beneficiaries in the estate of any deceased person ... shall be deemed to have been distributed or to have ceased to be part of the estate of the deceased by reason of the fact that it is held by the administrator after he has ceased to be administrator in respect of that property and has become trustee thereof, or by reason of the fact that it is held by any other trustee.
This provision goes to the heart of the difficulty.
(4) Donationes mortis causa, that is, gifts made conditionally upon the donor not seeking to recover the gift before death, and becoming absolute upon death, are anomalous and do not form part of the estate of the deceased because they do not vest in the personal representative as such. But there are statutory provisions in New Zealand17 and in Queensland,18 which reverse the rule and in New South Wales,19 which can reverse the rule by enabling the gift be designated as “notional estate” of the deceased.
(5) Property the subject of a contract to leave a specific benefit by will is seen as caught by the contract and as a specifically enforceable obligation of the estate, even though the contract has been performed by the deceased by way of the inclusion of a specific legacy or devise in a will. This was held by the Privy Council in Schaefer v Schuhmann.20 In New South Wales the subject matter of such a contract can, in certain circumstances, be designated as notional estate of the deceased. Since the other contracting party will have furnished consideration for the specifically enforceable promise an issue of competition between the efficacy of contracts and the moral imperative underlying family provision legislation is raised.
(6) In Queensland there is a provision in section 44(1) of the Succession Act 1981 which, in effect, removes from the ambit of a family provision claim property forming part of the estate which the personal representative has utilised for the maintenance or support of the wife, husband or any child of the deceased who was totally or partially dependent on the deceased person immediately before the death of the deceased person. This provision enables the personal representative to look after the surviving spouse and issue of the deceased during the period immediately after the death. It is consistent with the underlying policy of the legislation. In Western Australia there is a differently worded provision, but to the same purpose, in section 11 of the Inheritance (Family and Dependants Provision) Act 1972 (WA). In the Australian Capital Territory and the Northern Territory there is a not dissimilar provision in section 20 of the Family Provision Act.21
(7) If a potential applicant has consented to the distribution of property to a beneficiary, that property cannot form part of the estate from which that consenting applicant later applies for provision.
(1) The principal challenge is presented by the New South Wales inclusion of the concept of the “notional” estate, directed mainly against those who attempt to evade the legislation by inter vivos acts or omissions which have the effect of reducing the property forming part of their estates. Whether it would be possible to persuade other States and Territories to follow this approach may perhaps depend on how successful it has been in New South Wales in practice. There is also the question of whether the policy of the legislation, which can be perceived within the legislation, might perhaps be capable of being expressed in shorter but broader language. An evaluation of the legislation, from a New South Wales perspective, must be undertaken as part of the project.
(2) The question must be settled of whether property the subject of a trust created by the will, or upon the intestacy, of a deceased person should be considered to remain as part of the estate of the deceased person. This issue is not unconnected with the rules respecting the time within which an application must be made.22 As an example, suppose that a testator leaves property of significant value upon trust for a spouse or perhaps an incapacitated person for life with gifts over. It may well be that some of those entitled to the gift over have no objection to the gift of the life interest but might consider that better provision should have been made for them after the death of the life tenant. There seems to be no harm in allowing any dispute concerning the distribution of the property the subject of the life interest to be resolved after the death of the life tenant, in the light of circumstances as they are at that time.
(3) There is also the relatively minor question of whether a donatio mortis causa should be regarded as forming part of the estate of the deceased.
5.9 PROPERTY THE SUBJECT OF A POWER OF APPOINTMENT EXERCISABLE BY WILL
When a testator exercises a power of appointment by will the property appointed is not part of the testator’s estate; it is the property of the person who conferred the power on the testator. The testator merely points out who is to take the property the subject of the power. If the power is of the kind described as general, that is, it can be exercised by the donee of the power in favour of anyone, then the testator can deal with that property by will virtually as if it were his or her own property.
Moreover all wills legislation provides, to use the wording of section 28(d) of the Succession Act 1981 (Qld), that:
a general disposition of all the testator’s property or of all the testator’s property of a particular kind includes property or that kind of property over which the testator had a general power of appointment exercisable by will and operates as an execution of the power.
In substance the same provision, deriving from the English Wills Act 1937 is found in all States and Territories.23
The subject matter of such a general power of appointment might indeed be the most important asset passing, by virtue of the exercise of the power (whether consciously or not). For instance, a husband may leave the family home to his wife for life and after her death to such person or persons as the wife may in her absolute discretion appoint. The wife’s own estate, at her death, might not be substantial. However, if, by will, she leaves “all my estate” to a certain person the general power of appointment of the family home, conferred upon the wife by the husband’s will, would be exercised by the general provision of the wife’s will, even if the wife were not aware of the operation of the rule.
Family provision legislation in the Territories and New South Wales makes property the subject of a general power of appointment available as if it were part of the estate of the deceased. For example, section 13(1) of the Family Provision Act in each Territory24 provides in part:
The remainder of the section expands considerably on this provision.
In New South Wales property which is the subject of a power of appointment in the deceased is embraced within the concept of “notional estate”.25
In Queensland, South Australia, Tasmania, Victoria and Western Australia there is no specific provision enabling property which is the subject of a general power of appointment to be treated as part of the testator’s estate for the purpose of the legislation; but the Court may take into account the effect of any exercise of a power of appointment by the deceased in the way in which it orders the distribution of property which does form part of the estate. This is specifically provided for in the Australian Capital Territory and in the Northern Territory.26
There could be an argument that the subject matter of a general power of appointment does form part of the estate of the deceased to the extent that it is appointed by the will by virtue of the statute.
Issue for consideration
The New South Wales legislation has addressed the question of property which is the subject of a power of appointment within its sophisticated doctrine of notional estate. The Territories have addressed the question in more traditional language. The other States have not caught up. There is a major issue here, including the issue of whether the States and Territories should take up the New South Wales concept of notional estate.
FOOTNOTES
1. Family Provision Act 1969 (ACT); Family Provision Act 1970 (NT).
2. There is a summary of their effect in Hardingham, Neave & Ford at 509-511 and in G L Certoma The Law of Succession in New South Wales (Law Book Co 2nd ed 1992) at 228-234.
3. In Wade v Harding (1987) 11 NSWLR 551 the failure of the deceased to sever a joint tenancy created for value was held not to be a prescribed transaction.
4. Family Provision Act 1982 (NSW) s27(2).
5. (1987) 11 NSWLR 551 at 555.
6. Succession Act 1981 (Qld) s41(1).
7. Inheritance (Family Provision) Act 1972 (SA) s7(1).
8. Testator’s Family Maintenance Act 1912 (Tas) s3(1).
9. Administration and Probate Act 1958 (Vic) s91.
10. Id s95.
11. Inheritance (Family and Dependants Provision) Act 1972 (WA) s6(1).
12. (1977) 136 CLR 308 at 324.
13. [1984] 2 Qd R 379.
14. [1987] 2 Qd R 394.
15. Family Provision Act 1982 (NSW) s6(4).
16. (1977) 136 CLR 308.
17. Family Protection Act 1955 (NZ) s2(5).
18. Succession Act 1981 (Qld) s41(12).
19. Family Provision Act 1982 (NSW) s22.
20. [1972] AC 572.
21. Family Provision Act 1969 (ACT); Family Provision Act 1970 (NT).
22. See Ch 6.
23. Viz: Wills Act 1968 (ACT) s26(2)(3); Wills, Probate and Administration Act 1898 (NSW) s23(2)(3); Wills Act 1938 (NT) s30(1)(2); Wills Act 1936 (SA) s30; Wills Act 1992 (Tas) s36; Wills Act 1958 (Vic) s25; Wills Act 1970 (WA) s26(d).
24. Family Provision Act 1969 (ACT); Family Provision Act 1970 (NT).
25. Family Provision Act 1982 (NSW) s22(4)(a).
26. Family Provision Act 1969 (ACT) s8(2); Family Provision Act 1970 (NT) s8(2).
