With housing affordability in Australia’s capital cities an issue for the younger generation, parental assistance is becoming all the more important for them to enter the property market. While this is commonly achieved through the monetary contribution of a deposit or a greater part of the purchase price, parents are also transferring their surplus investment properties to their children.
However, any parents who are contemplating the transfer of real estate to their children must give due consideration to the ‘notional estate’ provisions in New South Wales. These provisions allow the Supreme Court of New South Wales (‘Court’) to use certain property transferred to a third party by a deceased person before their death to provide for a claimant seeking further provision if the deceased left insufficient assets to provide for such person.
The recent New South Wales decision of Toscano v Toscano  NSWSC 419 is an example of such a case where the Court exercised its jurisdiction to make a notional estate order in respect of real estate transferred by a father to only two of his children.
This case concerned the estate of the late Vittorio Toscano who died on 12 March 2015. The deceased’s estate on his death was valued at approximately $600,000 and the deceased left the majority of it to his second wife, Anna, who was not the natural mother of any of his children. Under his will, the deceased left $500 to one of his sons, Victor.
Victor, Anna and Victor’s sister Maria each applied to the Court for family provision orders on the basis that they had not been adequately provided for under the deceased’s will. Victor’s brother Anthony defended the claims as executor along with his sister Katrina, the owner of possible notional estate property. Anna’s and Maria’s claims had been settled by the time Victor’s claim was heard.
As the deceased’s child, Victor was certainly eligible to apply for a family provision order. The question the Court then faced was whether the $500 that Victor received under the deceased’s will was adequate for his proper maintenance, education or advancement in life. In answering this question, the Court considered Victor’s estrangement from his father for many years before his death. The Court accepted that such estrangement and the overall poor quality of their relationship was due to the deceased’s violent and controlling nature.
In terms of Victor’s personal circumstances, he was 56 years of age and had recently separated from his second spouse, with whom he would soon enter into a property settlement. Although he was permanently employed and earning $5,640 net per month, his contract expired in two years and his prospects of retrenchment were high. Other than $325,000 in superannuation and a $500,000 house, which was encumbered by a mortgage for most of its value, he had nominal assets and debts. Assuming his second spouse would receive at least 50% of these assets as part of their property settlement, Victor said he would be left with very little.
Compared with Victor, Anthony’s and Katrina’s financial circumstances were much better. Also relevant to the Court’s assessment of Victor’s claim was the work he carried out for the deceased’s business when Victor was a child for approximately 11 years. While acknowledging that a value cannot be placed on such work, the Court considered this work nonetheless was a significant contribution to the ability of the deceased to purchase his real estate.
Being satisfied that Victor received inadequate provision under the will, the Court needed to consider what sort of family provision order should be made for him. While the Court did not think the community would expect a father to provide an unencumbered house for his adult child, the Court did think that the deceased should have provided Victor with an appropriate legacy as a buffer against contingencies and to assist him in his retirement. Accordingly, the Court ordered that Victor receive the sum of $180,000 plus part of legal costs, using the adjusted provision made to Anthony and Katrina as guidance.
While Victor succeeded in his family provision claim, he did not want to disturb the provision made for Anna as the deceased’s widow. Since she effectively received the estate’s only significant asset, there was technically no estate from which to pay Victor his provision as ordered by the Court. As a result, Victor applied to the Court for an order that the following properties would form part of the deceased’s notional estate for the purpose of satisfying his order for provision:
Anthony and Katrina, as the owners of the respective properties, opposed the Court making such an order to meet Victor’s provision (interestingly) despite them earlier accepting the properties as notional estate for the purpose of the settlements with Anna and Maria. Nevertheless, the Court found that this did not prevent them from so resisting Victor’s application. As such, the onus fell on Victor to satisfy the Court that the two properties should be designated as the deceased’s notional estate.
Since the above transfers were made for consideration of $1 (clearly less than full valuable consideration) less than three years before the deceased’s death, the Court could designate them notional estate only if satisfied that the transfers were made by the deceased with the intention (wholly or partly) of denying or limiting provision being made out of his estate for any eligible claimant.
What was required from Victor was not proof that the deceased’s intention was to limit provision for Victor specifically, but rather for anyone eligible to make a family provision claim. Ultimately, the Court found that on the balance of probabilities, the deceased intended the transfers to limit Anna’s claim on his estate and to control what she received. Critical to the Court’s finding was that the deceased continued to treat the properties as his own (e.g. residing in one of them and receiving rent from the other) despite transferring them to his children. The Court’s reasoning was as follows:
“I am satisfied that the court should draw an inference that the deceased had an intention, albeit a subsidiary intention, to transfer a half interest in the Ryde property and the whole of the title to the Oatley property in the proportions that he chose, to the two of his children who had remained closest to him, in a manner that would allow him to determine the disposal of his estate, and to reduce the chance that his intentions would be thwarted by any legal proceedings, being in fact an application for a family provision order. It is most likely that the deceased’s subjective intention was directed towards the position of his wife, Anna, but it is also reasonably likely that he was concerned with all of the members of his family who he did not consider to be close to him.”
Having been satisfied of the deceased’s requisite intention and with no suitable evidence adduced by Anthony or Katrina to rebut the above inference, the Court made the notional estate order sought by Victor on the basis it would not interfere with the reasonable expectations of Anthony and Katrina. As a result, Anthony and Katrina were forced to equally pay Victor’s legacy and costs out of the equity in their properties and bear most of their own legal costs.
This case acts as a warning for parents who wish to transfer their property to only some of their children. While the law does not expect all children to be treated equally regardless of their circumstances, a poor relationship between parent and child will not prevent a child from successfully claiming further provision. Those in New South Wales need to be particularly aware of the notional estate provisions and ensure that adequate provision is made for all possible claimants otherwise that gift to their favourite child may turn out to be a burden.
If you require legal advice about your rights with respect to a deceased estate or making a family provision application, please contact HPL Law Group on (02) 9905 9500.