Introduction
Many individuals choose to make a gift of property or other assets during their lifetime as part of their estate planning. However, a common misconception is that a gift made during your lifetime automatically removes it from consideration after death, but these actions can significantly complicate the final distribution of an estate and even lead to a will contest.
This guide explains how lifetime gifts can impact a beneficiary’s inheritance, particularly in NSW where concepts like “notional estate” can allow a court to claw back assets for a family provision claim. Understanding these complexities is crucial for effective estate planning, and it is essential to seek legal advice to ensure your will accurately reflects your intentions and minimises the risk of future disputes.
Understanding Notional Estates & Family Provision Claims in NSW
How the Court designates property as notional estate
In New South Wales (NSW), a gift of property made before death does not automatically protect that asset from a will contest. The law allows the court to make a notional estate order, which effectively “claws back” certain assets into the estate to be available for distribution in a family provision claim.
Under Section 80 of the Succession Act 2006 (NSW), the court can designate property as part of a notional estate. This typically occurs if the court is satisfied that:
- The deceased person entered into a transaction to deny or limit the provision that could be made from their estate for an eligible person.
- If a notional estate order is made, the asset from the gift made during your lifetime is treated as part of the deceased’s estate.
Time limits for clawing back gifts made during your lifetime
Specific time limits apply for the court to consider clawing back a gift made into the notional estate. A court may make a notional estate order if the transaction that transferred the property occurred in certain circumstances, including:
| Timeframe / Condition | Circumstances for a Notional Estate Order |
|---|---|
| Within 3 years of death | The transaction was intended to deny or limit adequate provision from the estate for a person entitled to make a family provision claim. |
| Within 1 year of death | The deceased had a moral obligation to provide for someone’s maintenance, and this obligation was substantially greater than any obligation they had to enter into the transaction. |
| Transaction takes effect after death | Any transaction that is structured to take effect upon or after the deceased’s death can also be brought into the notional estate. |
Given the complexities involved in notional estate claims, it is important to seek legal advice if you are an executor or beneficiary in an estate where a significant gift of property was made. An experienced lawyer can provide guidance on how these rules may affect the will and any potential contest.
The Impact of Lifetime Gifts on Beneficiary Entitlements
The rule against double portions & intended substitution
When a gift of money or a property settlement is made during your lifetime, the law may presume it was intended to replace a gift of the same amount in your will. This legal principle is known as the rule against “double portions,” which operates on the assumption that you did not intend for a beneficiary to receive both gifts. The court presumes that a lifetime gift to a child is an early payment of their inheritance.
However, this presumption can be challenged with evidence showing the will-maker’s true intentions. For the lifetime gift to effectively replace the one in the will, it must be clear that the beneficiary understood this arrangement.
To avoid disputes, it is crucial to document your intentions when you make a gift. Seeking legal advice can also ensure your wishes are clearly recorded. Notably, this rule can apply in other situations, such as when a property settlement is made with an ex-spouse through a binding financial agreement.
How ademption applies when a gift of property is no longer owned
If a will contains a specific gift of property that you no longer own at the time of your death, that gift typically fails. This rule, known as ademption, means the beneficiary is not entitled to receive:
- a replacement asset, or
- the cash equivalent of the failed gift.
For instance, if your will leaves a specific house to a relative but you sell that house before you pass away, the gift is adeemed and the beneficiary receives nothing in its place.
However, there are important exceptions to the rule of ademption, particularly in NSW. A beneficiary may still have an entitlement in certain circumstances, including:
| Exception to Ademption | Explanation |
|---|---|
| Change in name only | The gift will not fail if the asset has only changed in name or form, such as when a gift of shares is made and the company later changes its name. |
| Unauthorised sale | If the asset was sold by someone without the authority of the will-maker, the beneficiary may be entitled to the proceeds from that sale. |
| Sale by an attorney | Under the Powers of Attorney Act 2003 (NSW), if an asset is sold by someone acting under an Enduring Power of Attorney, the beneficiary of that specific gift retains an interest in the remaining proceeds of the sale. |
Case Study on The Estate of Pendergast & Lifetime Gifts
Background of the dispute regarding gifts given
The Supreme Court of NSW examined how a gift made during your lifetime can affect a will in the case of Pendergast v Shingles [2025] NSWSC 909. The dispute involved the will of Brian Patrick Pendergast, who had given two parcels of farmland to his son, Karl, in 2005, long before his death in 2023.
Mr Pendergast’s 2015 will was structured to ensure fairness among his children by creating what was termed an “augmented estate.” Specifically, the will:
- Specified that the value of the gift of property made to Karl should be added to the estate’s total value before distribution.
- Stated that each child was to receive a quarter share of this augmented estate, but Karl’s final share would be reduced by the value of the land he had already received.
Karl contested this arrangement, arguing he was entitled to a full quarter of the net estate.
The Court’s decision on the augmented estate & fairness
The Court upheld the executors’ interpretation of the will, confirming that the lifetime gift to Karl had to be accounted for. Justice Slattery clarified the correct formula for calculating the entitlements from the estate.
The process involved three key steps:
- First, the net value of the estate was to be added to the market value of the land Karl had received to create the “augmented estate.”
- Second, this augmented estate was to be divided into four equal shares for the beneficiaries.
- Finally, the value of Karl’s land was to be deducted from his share.
This calculation meant that Karl’s inheritance from the will could be significantly reduced, or even brought to zero, if the value of his gift of property was greater than his share of the augmented estate.
The Court noted that the will did not attempt to give away property the deceased no longer owned; rather, it used a formula to achieve a fair distribution. This case highlights why seeking legal advice is crucial for complex estate planning, as clear drafting can prevent costly disputes among beneficiaries.
Grounds for Challenging Lifetime Gifts & Estate Assets
Lack of mental capacity & undue influence
A gift of property made during a person’s lifetime can be challenged if the donor did not have the mental capacity to make the gift at the time. For a gift to be valid, the donor must have understood the nature of the transaction and its consequences.
If it can be proven that the donor lacked this understanding, the gift may be invalidated and the asset returned to the estate.
Similarly, a lifetime gift can be contested on the grounds of undue influence. This occurs when a person is pressured or coerced into making a gift against their own free will.
If a beneficiary believes a gift was made under duress, they can challenge its validity. Successfully challenging a gift on these grounds requires gathering relevant evidence, so it is important to seek legal advice.
Fraudulent transactions & gifts made by attorneys
A gift made during your lifetime may also be challenged if it was the result of fraud. This can occur in situations where:
- The deceased was not aware that the gift was being made
- The deceased was deceived into transferring the asset
If fraud is established, the transaction can be overturned and the property may be recovered for the estate.
Strict rules also apply to gifts made by someone acting as an attorney under a Power of Attorney. An attorney can only make a gift on behalf of a donor if it is within the powers granted to them.
Any gift made outside of this authority or without the required approval from the Court of Protection can be challenged. If your inheritance has been reduced by a questionable gift, consulting a lawyer can help determine if there are grounds to contest the transaction.
The Importance of Seeking Legal Advice for Executors & Beneficiaries
Why you must seek legal advice for estate planning
Engaging an experienced lawyer is essential when making a will, especially in complex cases involving multiple beneficiaries or a significant gift of property. An estate planning lawyer can:
- Help structure your will to clearly reflect your intentions
- Assess the risk of a potential family provision claim against your estate
This is particularly important in NSW, where the concept of a notional estate can affect certain estate planning strategies.
If you are an executor or beneficiary involved in a matter where the deceased made a gift of property before their death, seeking legal advice is crucial. A lawyer can provide guidance on how laws such as the Succession Act 2006 (NSW) may impact the will and any potential contest. By obtaining professional advice, you can make informed decisions to achieve your desired outcome.
The role of lawyers in minimising disputes & contested wills
A key role of a lawyer is to help minimise the risk of your will being contested. If you plan to disinherit someone or provide a minimal inheritance, a lawyer can assist you in documenting your reasons in a separate statement. While this does not prevent a claim, it provides your executor with your reasoning, which can be relevant if the will is challenged.
Lawyers also help manage complex family arrangements and ensure your will is structured to defend against potential challenges. For example:
- If the will-maker is elderly, a lawyer may recommend obtaining a medical certificate to confirm testamentary capacity
- This proactive approach can reduce the risk of a contest based on the will-maker’s mental state
Taking these steps can help prevent costly disputes and delays in the distribution of the estate.
Conclusion
A gift of property made during your lifetime can significantly impact your estate, creating complexities that may lead to a will contest. In NSW, concepts like the notional estate can bring a gift back into consideration for a family provision claim, while legal principles such as ademption can cause an intended gift to fail entirely.
To ensure your estate planning accurately reflects your wishes and minimises the risk of future disputes, it is essential to seek professional legal advice. For trusted expertise in structuring your will, contact the experienced wills and estate lawyers at PBL Law Group to safeguard your intentions.
Frequently Asked Questions
