Deed of Family Arrangement in NSW: Changing Estate Distribution

Introduction

When a person dies without a valid will in New South Wales, the Succession Act 2006 (NSW) (‘Succession Act‘) governs how their estate is divided among next of kin under the rules of intestacy. Beneficiaries who hold or are seeking Letters of Administration may prefer to alter the distribution rather than accept the statutory formula.

A Deed of Family Arrangement enables all entitled parties to agree to vary the distribution of an intestate deceased estate without resorting to litigation. This article sets out the legal requirements, taxation and duty consequences, and protections for the administrator, so families can make informed choices before the estate is distributed.

Interactive Tool: See If Your Family Can Use a Deed of Family Arrangement

The Purpose of a Deed of Family Arrangement for Beneficiaries & Family Members

Alteration of the Statutory Intestacy Formula

When a deceased person dies without a valid will, the rules of intestacy determine which family members are entitled to the estate and the share each beneficiary receives. However, those statutory entitlements may not reflect the family’s preferred distribution of the deceased estate.

A Deed of Family Arrangement is a legally binding agreement that allows the beneficiaries to record a different arrangement. The deed may vary the distribution of estate assets from the outcome produced by intestacy, such as where family members agree to divide the estate differently.

Resolution of Estate Disputes Without Court Proceedings

A formal family arrangement allows beneficiaries to address disagreements about the distribution of an estate through an agreed document. 

It can provide flexibility where the circumstances of the family have changed or where a beneficiary is dissatisfied with the proposed distribution.

A Deed of Family Arrangement may also record an enforceable settlement of an estate dispute, including a dispute about a will or a potential family provision claim. Reaching agreement can:

• avoid lengthy and expensive litigation;
• help preserve family relationships; and
• give the executor a clear basis for administering the estate.

Essential Requirements for a Valid Family Arrangement in NSW

Requirement for Unanimous Consent from All Entitled Parties

A Deed of Family Arrangement requires the consent and agreement of every party entitled to an inheritance under the will or the rules of intestacy. Each beneficiary must agree to the deed’s terms before it can vary the proposed distribution of the estate.

This includes every person whose entitlement may be affected, including a beneficiary who may receive a different share of the estate or agree to transfer part of their entitlement to another person. Without unanimous agreement, the deed cannot record a binding variation among all affected parties.

Provisions for Minors & Beneficiaries Lacking Mental Capacity

A person under 18 or a beneficiary who lacks capacity cannot enter into a Deed of Family Arrangement without the required approval. The arrangement may require an application to the Supreme Court of New South Wales before it can proceed.

Court approval is also relevant where a deed changes the entitlement of:

• a minor;
• an incapacitated beneficiary; or
• another person who cannot provide informed consent.

The court’s involvement protects the affected beneficiary’s interests before the estate distribution is altered.

The Necessity of Independent Legal Advice

Each party should obtain independent legal advice before signing a Deed of Family Arrangement. Separate advice allows every beneficiary to receive an objective explanation of:

• the deed’s legal merits;
• its proposed terms; and
• the possible effect on their share of the estate.

A wills and estate planning lawyer involved in drafting the deed can explain the proposed distribution and prepare the document accurately. Each affected beneficiary should have the opportunity to obtain advice from a separate lawyer before agreeing to vary the estate distribution.

Tax & Duty Consequences for Beneficiaries Who Alter an Intestate Estate

Transfer Duty on Variations Not in Conformity

Under Section 63 of the Duties Act 1997 (NSW) (‘Duties Act‘), the $100 applies to certain transfers of dutiable property from the legal personal representative of a deceased person to a beneficiary, including where the transfer is made under and in conformity with the trusts contained in the will or arising on intestacy.

A Deed of Family Arrangement that changes a beneficiary’s statutory entitlement means the transfer is not in conformity. Standard ad valorem transfer duty may apply to the portion received above the beneficiary’s original entitlement. 

Transactions involving a variation to the distribution under a will, including a transfer under a deed of family arrangement, must be lodged with Revenue NSW for assessment via eDuties rather than processed through Electronic Duties Returns (EDR).

Property Valuation & Surcharge Purchaser Duty

A professional property valuation report is required when a variation changes the share of property received by a beneficiary. Revenue NSW uses the valuation to calculate duty on the varied portion, with duty calculated by reference to the higher of the amount paid or the market value where applicable.

A foreign person is exempt from surcharge purchaser duty when property passes strictly in conformity with the deceased person’s will or intestacy laws. 

Surcharge purchaser duty may apply to the dutiable value of a residential property share acquired through a deed that changes the original entitlement.

Capital Gains Tax Implications for the Deceased Estate

Changing the distribution of a deceased estate may have Capital Gains Tax (CGT) consequences. Under the Australian Taxation Office’s guidance, How CGT applies to inherited assets, an asset may pass to a beneficiary under a deed of arrangement where:

• the deed settles a claim to participate in the deceased estate; and
• the only consideration is the variation or waiver of a claim to estate assets.

The deed should ordinarily be entered into before the legal personal representative completes the estate administration. Where these conditions are satisfied, the asset is treated as having passed to the beneficiary, allowing the legal personal representative to disregard any capital gain or capital loss arising from the transfer.

Protection Mechanisms for Administrators of a Deceased Estate

Inclusion of a Release & Indemnity Clause

A Deed of Family Arrangement should include a release and indemnity clause protecting the administrator from future lawsuits or claims about the distribution of the estate. The beneficiaries agree to:

• release the administrator from claims connected with the distribution; and
• indemnify the administrator against related liability.

This clause records the beneficiaries’ agreement about how the estate is to be distributed. It can give the administrator a clearer basis for completing estate administration after the deed has been signed.

Publication of a Notice of Intended Distribution

An administrator may publish a Notice of Intended Distribution through the NSW Online Registry before distributing any part of the estate. The notice gives creditors 30 days to notify the administrator of a claim.

Publication is not mandatory. However, the notice may provide protection from personal liability for unknown claims, subject to compliance with the relevant requirements, under the following provisions:

• Section 92 of the Probate and Administration Act 1898 (NSW); and
• Section 93 of the Succession Act.

Part 78 Rule 93(a) of the Supreme Court Rules 1970 (NSW) provides that a notice of intended distribution relating to the estate of a deceased person for which a grant of representation has been made or resealed by the Court must be published on the New South Wales Online Registry website.

Management of Creditors & Estate Debts

An administrator must call in the assets of the deceased person and pay the deceased’s debts before distributing the estate. This includes unpaid accounts and any required tax returns.

The administrator holds the estate as trustee for the beneficiaries until distribution. The administrator must:

• act in good faith;
• act with due care and diligence; and
• keep estate property separate from personal property.

Failure to administer the estate properly may result in personal liability to repay or compensate the estate.

Conclusion

A Deed of Family Arrangement can give beneficiaries a formal way to change how an intestate estate is shared when the statutory outcome does not reflect the family’s agreed position. Independent legal advice, transfer duty and capital gains tax consequences, creditor claims, estate debts and the administrator’s responsibilities should be considered before the estate is distributed.

With these issues in mind, contact LawBridge’s wills and estate planning lawyers to request a consultation about drafting or reviewing the arrangement. The team can provide practical legal guidance to help beneficiaries and administrators address the agreement, taxation issues and estate administration steps with greater clarity.

Frequently Asked Questions