How is a Mutual Will created?

In some cases, it may be easy to determine when a Mutual Will has been created. An example may be where a couple sign Mutual Wills that have been executed in accordance with the formal requirements.

In other cases it may be harder to determine whether a Mutual Will exists, such as where the agreement was verbal. In these cases, the court will usually have to infer that the parties intended to enter into a legally binding agreement. The court may consider the factors set out in Albrow v Cunningham [2000] NSWSC 103 in the process:

• whether there is a statement in writing,
• to how many people the statement was made,
• the consideration offered,
• the number of times the statement was made,
• the language used,
• the context in which the promise was made,
• the nature of the relationship between the parties,
• the certainty of the terms.

Why Might a Mutual Will be used?

People may use Mutual Wills for a range of reasons.

The reasons may be virtuous where the testator trusts the surviving spouse to distribute assets in a particular way.

However, the reason may be less virtuous or even vindictive such as:

• where the testator believes they have already sufficiently provided for children of a first marriage,
• where the testator believes the property settlement with their previous spouse was generous and the children will inherit from the former spouse, or
• where the testator wants to disinherit their children — due to estrangement or where the children haven’t been accepting of the new partner.

When Is a Mutual Will Not a Good Idea?

Although many people believe Mutual Wills are a good option, they are rarely the best option and can present significant risks that could otherwise be avoided through the use of alternative approaches.

The Advantages and Disadvantages of a Mutual Will

The advantages of Mutual Wills can include:

• Clients often find them easy to understand
• They provide a simple and appealing flow of assets — to the surviving spouse and then to children
• They provide more flexibility for the surviving spouse than an outright gift — such as allowing the surviving spouse to control and deal with assets during their lifetime
• They are potentially less complicated and costly than other alternatives — such as inter vivos family trusts, life estates, and testamentary trusts
• They often provide a path of least resistance for spouses — by appeasing each other while both present at the solicitor’s office

The disadvantages of Mutual Wills can include:

• Being restrictive on the surviving spouse by limiting their ability to deal with future contingencies (i.e., future children, future marriages)
• Failing to provide flexibility or allow for unexpected events following the death of the first spouse
• The surviving spouse may dissipate or diminish the estate, though this depends on whether the terms of the agreement prohibit the transaction. Some transactions may not amount to a breach unless the parties specifically agreed not to make transactions
• They may increase the risk of a family provision claim against the deceased estate
• The Mutual Will does not ring-fence and protect assets by removing the deceased’s obligation to provide adequate provision to those entitled
• They may be very costly to enforce
• Breaches may occur in secret and remain undetected for decades

What if One Party Changes or Revokes Their Mutual Will Without Consent of the Other?

Mutual Wills form a legally binding contract for assets to be distributed under an agreement.

Where the Will is revoked or changed without the consent of the other party — the other party may sue for damages for breach of contract and equity. In some instance, the surviving spouse may find out about the change only after the first spouse passes away, in which case it will be left to the surviving party to enforce.

Where the Will is revoked by the surviving spouse after the death of the first spouse — a person who suffers a loss is entitled to bring an action against the surviving party. In there circumstances, the obligations operate as a floating charge over the assets which crystallises upon the death of that person. This includes where a Mutual Will is revoked at law, such as, where either spouse remarries.

What Happens After the Death of One Party in a Mutual Will

While each party remains alive, the obligations operate as a floating charge over the assets.

This obligation crystallises once one spouse dies.

Consequences of Breaching a Mutual Will Agreement

A breach may occur where one party revokes or changes their Will without notice.

Where one party revokes or changes the Will without notice to the other party — the other party would be entitled to bring proceedings for damages for breach of contract and in equity. In some instance, the surviving spouse may find out about the change only after the first spouse passes away, in which case it will be left to the surviving party to enforce.

Where the Will is revoked by the surviving spouse after one party dies — a person who suffers a loss is entitled to bring an action against the surviving party. In these circumstances, the obligations operate as a floating charge over the assets which crystallises upon the death of that person.

Where there is no written will or contract the person bring a claim may rely on estoppel.

Where the surviving spouse attempts to dispose of assets, injunctive action may be taken to prevent the disposal of the asset.

Alternatives to Mutual Wills

Given the risks and disadvantages of a Mutual Will contract, other options should be considered.

Alternative options may include:

• Outright gifts — where a person makes gifts from their estate directly to their children allowing the children of the first marriage and partner of their second marriage to move on with their lives
• Testamentary trusts — establish separate trusts for the benefit of different families
• Life estates / portable life estates — which provide for the income to be paid to the spouse and capital to the children (the remaindermen) once the surviving spouse passes away. This requires careful drafting — what constitutes termination, surrender, disclaimer, obligations to pay outgoings, delays, entitlements, and tax consequences

It’s also important to consider the impact non-estate assets may have on the wider estate plan, including family trusts, companies and superannuation.

Blended Families: Family Provision Claims and Mutual Wills

A Mutual Will may increase the risk of a disappointed beneficiary making a family provision claim against the estate.

Claims may arise where a husband leaves the whole of his estate to his second wife on the promise from the second wife that she will provide a benefit to the children from his first marriage, when she dies.

In these cases, as the children from the prior relationship don’t receive an immediate benefit upon the death of their parent, they may be able to show that adequate provision for their proper maintenance, education and advancement in life was not made in the deceased’s will. This is regardless of whether they are likely to receive a future benefit.

It is important to note that if adequate provision is not made for all possible beneficiaries, there may be a risk of a family provision claim against the estate. In these cases the executor or administrator will be required to defend the claim.

Empower Wills and Estates Lawyers Can Advise You on Whether Mutual Wills Are Right for You

If you are considering making a new Will, or preparing a Mutual Will and would like to know if they are right for you, contact the experienced lawyers at Empower Wills and Estate Lawyers today on 1300 414 844.

We can assist by advising you on everything you need to know about Mutual Wills and the effect of a Mutual Will.

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Disclaimer: the information in this article relates to NSW law as at the date it was written and is general information only. It does not constitute legal advice and should not be relied upon as legal advice. It may contain information or links to sources which are no longer current. If you have a question or legal issue, we recommend you contact a lawyer and obtain legal advice that takes into account your specific facts, circumstances, needs and objectives.