Estate Planning & Blended Families – how can you protect your Estate for the benefit of your children with a Mutual Will?
When used appropriately and effectively, Mutual Wills can provide binding certainty that your Estate will ultimately pass to the beneficiaries you and your partner have agreed upon. However, when used without proper legal advice, they can create inflexibility, family disputes, and expensive litigation.
What Is a Mutual Will Agreement?
A mutual will agreement is a legally binding contract between two people (usually spouses or partners) under which they each agree to make Wills in specified terms and, crucially, agree not to revoke or alter those Wills after the death of the first of them.
WHAT IS THE DIFFERENCE BETWEEN MUTUAL WILLS AND MIRROR WILLS?
The agreement is not merely making “mirror Wills” (two Wills with similar content) as mirror Wills can be changed at any time by either party whilst a mutual Will agreement adds a binding contractual overlay that prevents the survivor from rerouting the estate.
When the first party dies, equity imposes a constructive trust over the Estate of the surviving party, requiring the assets to be distributed in accordance with the mutual agreement (even if the survivor makes a new Will).
WHEN SHOULD YOU CONSIDER A MUTUAL WILL AGREEMENT?
Mutual wills are most appropriate in the following circumstances:
- Blended families – where one or both partners have children from a previous relationship and want to ensure those children ultimately benefit from the estate, even if the surviving spouse later remarries or changes their Will;
- Protecting family assets – where one partner has contributed significant family wealth and wants to ensure it stays within their family line after both parties have passed away;
- Common children – where both parents want to create an enforceable obligation (rather than a moral one) that their children will ultimately receive the Estate; and
- Where a simple testamentary trust is insufficient – because a testamentary trust only binds the assets of the first to die; the survivor can still do whatever they wish with their own assets.
How Does a Mutual Will Agreement Work in Practice?
The agreement should clearly specify:
- The assets that are the subject of the mutual agreement;
- The powers the survivor retains during their lifetime (for example, the right to spend income, sell and reinvest assets, or even spend capital for maintenance);
- Who the ultimate beneficiaries are and in what proportions; and
- Whether the survivor may change the distribution in any respect.
Both parties make their Wills simultaneously and execute a separate written agreement confirming the binding nature of the arrangement. The agreement must be properly documented as simply making similar Wills at the same time is not sufficient to establish a mutual Will agreement. The legal threshold for proving an agreement exists is high, and poorly documented arrangements routinely fail in court.
what are the benefits of mutual wills?
A number of the benefits include:
- Provides legally enforceable certainty that the agreed beneficiaries will receive the estate regardless of the survivor’s future relationships or changed wishes;
- May limit the scope for successful family provision claims against the second estate because the Estate is already subject to a constructive trust obligation; and
- Preserves family harmony by removing the uncertainty of what the survivor might do after the first death.
What are the risks and disadvantages of mutual wills?
Things to consider before committing to a mutual will:
- Inflexibility – the survivor is bound even if the circumstances change dramatically. For example a nominated beneficiary predeceases both parties or family relationships deteriorate;
- Proving the agreement – if the agreement is not carefully documented, beneficiaries may face expensive litigation to enforce it;
- Interaction with family provision law – a mutual Will agreement does not necessarily defeat a Part IV claim against either Estate; it merely directs the net estate to agreed beneficiaries after any provision order.
Advice is essential before entering into any mutual Will agreement.
Our Wills, Estates and Trusts team can provide you with advice and assistance through the process of making a mutual Will and assist with determining whether it is suitable for your familial situation
