Fact Sheet About Mutual Wills
Imagine this: you and your spouse make wills leaving everything to each other. You die. Years later, your spouse remarries/re-partners. The kids have grown up and ‘gone their own way’. Your spouse decides to make a new will leaving everything to his new partner. Furthermore, he and his new partner sell the house you’ve previously lived in and use the proceeds to buy a new house in their joint names. You lie in your grave furious at your spouse. Could you have done anything differently?
Putting the issue a slightly different way:
“I am concerned that my husband/wife/partner will either lose or pass on what I leave him/her to a new partner. How can I protect our/my children’s interest in my estate from future re-marriage or divorce?”
This concern also relates to assets that are within superannuation and held as joint tenants, such as the family home which do not necessarily pass through a Will.
One of the strategies is to make what is commonly called “Mutual Wills”. Other strategies are available that involve trusts, but these are not the subject of this Fact Sheet.
Mutual Wills arise from mutual promises that you each make to the other. The promises are along the lines of “We are making an agreement with each other that is binding on each of us and the assets within our joint estate. We further promise not to change our Will without prior reference to the other.”
There are many effects of these promises. Some of the effects are:
1. The assets that are subject to the promises are “charged” with the obligations of the promises;
2. Any change to a Will by one without reference to the other breaches the promise. The effect of the breach is that if the Will is challenged, post-death of that person, the changed Will would be either read down or modified by the court so that the bequests made correspond to the Mutual Will;
3. If one of the parties loses capacity, then the other has lost the ability to revise their Will to the extent that any revision is contrary to the Mutual Wills; and
4. Once a will-maker has died, the assets in that person’s estate are “charged” with the Mutual Will obligation.
The next question that is asked is “We have made Mutual Wills, is the survivor prevented from using and spending our Mutual Estate?” The Short answer is NO!
The survivor can use and spend the Mutual Estate. The assets that have been received remain charged with the obligation. Writing a new Will, or remarrying does not extinguish the obligation. There is also a legal argument that the assets that have been charged with the obligation do not form part of assets available for division, should the survivor remarry and subsequently divorce. This argument has yet to be tested in Court.
Mutual Wills are not for everyone and should be given careful consideration. Courts will only enforce them if the Court is satisfied that the Will before the Court is indeed a Mutual Will (and not simply a ‘mirror will’).
To some extent Mutual Wills go against public policy principles because:
1. Mutual Wills is a limit to the right of testamentary freedom, which is the right to make your own Will.
2. If a Will-maker loses capacity the other party loses the right to make changes to their own Will.
3. A high evidentiary burden on the establishment of Mutual Wills is required.
So why do we offer the Mutual Will option?
Our answer is quite simple we offer the Mutual Will option because the option fits the estate planning requirements of some of our clients. Our clients are making joint decisions to provide for themselves and their families, including taking out life insurance and contributing to superannuation.
We take the view that those decisions and objectives should be respected. We have confidence in our skillset and processes to properly advise our clients
How flexible can a Mutual Will be?
A simple answer is: very flexible, the choice is yours. The Mutual Will obligation can apply to your whole estate, your home, your superannuation. The choice is yours.
So, what do we need to do next?
Just ask us. We are here to assist you, even with more complex estate planning issues.