25/09/2013

Mutual wills are Wills that include a binding contract between the parties stating that:

1.    each party will leave their property to the mutually agreed beneficiaries, which could include the other;
2.    during their lifetime, neither party will revoke or change their Will without the consent of the other; and
3.    after the death of one party, the survivor will not alter or revoke their Will to change the mutually agreed beneficiaries.

A Mutual will can be useful in an estate plan for a couple where one or both partners have children from a pre-existing relationship. While the partners in this blended family, say Jason and Nicole, want to leave their assets to each other when one passes away, they may also wish to ensure that each of Jason and Nicole’s estate goes to their respective children.

Without a Mutual will, there is a risk that the surviving partner could change their Will and leave everything to their own children.

If the surviving partner makes a new will and departs from the agreement, the effect of the contract means that the courts will impose a constructive trust over the property inherited by the survivor. This would hold the property on trust for the survivor during their lifetime and after their death, on trust for the beneficiaries specified in the Mutual wills contract.

Due to the creation of the constructive trust, Mutual wills provide a degree of certainty that the gifts in the Mutual will pass to their children as agreed after the death of one of them and the survivor remarries. This creation of the trust also means that a remarriage will not bring a Mutual will gift to an end and, as such, is an exception to the rule that marriage revokes an earlier will.

Mutual wills can be part of an estate plan for couples wanting to protect their family beneficiaries in the event one of them passes away and the survivor wants to remarry.

Mutual wills can also be considered for same-sex couples where the relationship is not recognised in law as constituting a formal marriage. Such couples may wish to ensure that the property goes to their partner under the terms of the contract in the will, and then to their preferred beneficiaries rather than be left to the surviving partner’s family or be dealt with under intestacy.

A risk in a Mutual will is that the survivor "fritters away" the assets, transfers property to their own children, or gives it away to someone else during their lifetime so that there is nothing left to inherit for the intended beneficiaries.

One way to safeguard this is to provide a life estate in respect of those assets so that the partner enjoys the benefit of possession and of the income from the particular property but does not have the right to sell it.  On the death of the first party, if there is a risk of loss of, say, real property, the intended beneficiaries could place a caveat on the property to prevent it from being transferred to someone else.

In the case of personal property, like a portfolio of shares, the family boat, or a share of a business, the beneficiaries could seek injunctive relief in Court to prevent the survivor from selling these assets.

Mutual wills have the benefit of giving the survivor reasonably unrestrained enjoyment of the property, but with an obligation to preserve it and pass it on to the children of one or both relationships. Properly constructed, such Wills can protect the interests of your intended beneficiaries.

For more information on Wills and Estate Planning, please call Townsends Business & Corporate Lawyers on (02) 8296 6222.