Question: What are mutual wills and when are they commonly used?
Answer: Mutual Wills are wills created between individuals, typically spouses or de-facto partners, that together form a mutually binding agreement.
The making of mutual wills means that neither party can alter certain clauses of their will without providing notice to the other party and the other party consenting to the alterations in writing.
Upon the death of one party, the survivor is contractually bound by the terms of the mutual will to dispose of their estate in accordance with the mutually agreed provisions which cannot be altered. If the surviving party amends the mutually agreed terms of their will, the beneficiaries can bring legal action against the surviving party to enforce the terms of the will.
Mutual wills are created by including a clause in the will specifying that the will is mutually binding and cannot be altered without the consent of the other party. Our preferred method is to create a 'mutual wills deed' that specifies the agreement between the parties, lists the clauses of the will that are mutually binding and the methods for termination or variation.
Mutual wills are commonly used in blended families, where both parties have children from previous relationships. Here they can ensure that the estate passes to the surviving spouse and then to the testator's children and surviving spouse's children in accordance with the percentages determined by the testator and spouse. This provides safety for the testator's children and ensures that the spouse does not remove their stepchildren from their will after the death of the testator.
Tax Tip:
A mutual will can be advantageous because:
it ensures that the testator's beneficiaries receive a share from the estate regardless of what occurs in the future;
it provides peace of mind for both parties that their wishes will be honoured once they pass away; and
it provides equitable remedies for beneficiaries if the surviving party amends their will.
A mutual will may not be suitable for everyone because:
the surviving party is bound by the terms of the mutual will and cannot amend their will if their circumstances change, for example if they remarry and have more children;
the restrictions of a mutual will may not be suitable for younger couples who are more likely to have personal and lifestyle changes that affect their estate planning;
a mutual will will not restrain the surviving party and prevent them from depleting the assets in the mutual will, and leaving nothing to the intended beneficiaries - unless there are restrictive clauses in place that prevent that from occurring; and
mutual wills cannot be used as a strategy for defeating family provisions claims.
We recommend that you contact us to determine if mutual wills are suitable for you and your family. If they are not suitable we can advise of other strategies that are more appropriate for you and your family, such as severing jointly owned assets as we discussed in Tax Tip #40, or creating life interests or testamentary trusts as we discussed in Tax Tip #13. Whatever your situation is, we will be able to provide guidance on what strategy is best for you and your family.
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