Hypotheticals by Manny Wood. Published in the Coffs Coast Advocate on 16 January 2016.
This week’s hypothetical looks at what can happen if your estate is the subject of a claim and a “notional estate” order is sought.
Mary had two children, namely John and Jane. Four years before Mary’s death, she transfers ownership of her home, valued at $550,000 to John for just one dollar. The transfer is subject to Mary having the right to reside in the house for the rest of her lifetime.
John resides with Mary on the property until Mary’s death. John spends a considerable amount of time and money on renovations and extensions to the property.
When Mary dies, the rest of her estate, including her savings account, total $65,000. Mary’s will leaves her estate to John and Jane equally.
Jane seeks legal advice, and is informed that the house does not form part of the estate and accordingly, after the payment of legal costs, Jane is entitled to just $30,000, while John also receives $30,000 together with the whole of the house.
Jane commences proceedings against the estate, seeking a family provision order for further provision. Jane argues that the transfer of the house to John is “notional estate” and that the value of the house should be “clawed-back” into the estate and a portion distributed to her.
The court found that Jane and Mary had a fairly normal mother-daughter relationship and that Jane had demonstrated sufficient needs to entitle her to an order in her favour.
Unfortunately for Jane, the court found that because the transfer of the property to John occurred outside the period of three years before Mary’s death, legislation prevented the “clawback” of the transfer. The court also found that the transfer was not made “with the intention of limiting provision being made out of the estate” which also prevented a “clawback”.
The legal costs to the estate in defending Jane’s claim totalled $50,000, which further prevented the court’s ability to make an award in Jane’s favour. Her claim was dismissed.
