Case update: how notional estates can trump binding death benefit nominations
Benz v Armstrong is in many respects a typical tale of a blended family. Dr Benz died leaving a second spouse of 10 years, Erlita and six adult children from his first marriage. Due to the nature of Dr Benz’s estate and although he had made provision for his residuary estate to be divided equally between his six children, Erlita ended up being the main beneficiary receiving the benefit of jointly held property and the death benefit payable from his SMSF. Unsurprisingly, several of Dr Benz’s children were unhappy about this and sought to challenge his Will seeking provision from his estate and/or notional estate.
At the time of his death, the deceased was a member of an SMSF. The total value of his member benefit was approximately $13m. In May 2016, the deceased put in place a binding death benefit nomination in favour of his wife Erlita. Around that time, Erlita was appointed as a director of the corporate trustee of the SMSF. During the course of the Family Provision Application proceedings, Erlita transferred approximately $9m in shares to herself by way of a death benefit, under the binding death benefit nomination.
In determining the Family Provision Applications, the Court also needed to determine to what extent any property held jointly by the deceased and of the deceased’s superannuation ought to be found to be part of the deceased’s notional estate.
New South Wales is the only state in Australia to recognise the concept of notional estate. The Court can find that property is notional estate in circumstances where in the three years prior to death, a deceased person either:
In deciding whether the deceased’s superannuation was part of the deceased’s notional estate, Justice Ward stated, “the omission to revoke a nomination is analogous to an omission to sever a joint tenancy, in light of the fact that the deceased’s nomination could be revoked at any time prior to his death”. Her Honour also highlighted that the nomination form completed by the deceased included a term stating that the deceased could revoke the nomination at any time and give a replacement nomination. However, Her Honour states that, “it was not until the moment of death that the failure to revoke the binding death nomination took effect.” For the reasons above, the Court found that the deceased’s super formed part of the deceased's notional estate, as well as a number of other assets including a jointly held property at Pymble, which the deceased and Erlita had owned.
As to the claims for further provision from the deceased’s estate by a number of his children, the Court found that the deceased had not provided adequately for them and awarded them amounts between $900,000 - $1.9 million each.
Although notional estates are unique to NSW law, practitioners need to be mindful when providing advice on superannuation, as well as other assets that may form part of a notional estate (such as those which are jointly held), to ensure they do not provide misleading advice to clients that these assets will be automatically excluded from an estate in NSW.