Mutual Wills

What is a Mutual Will?

To grasp the concept of Mutual Wills, it’s crucial to understand their purpose. Often, individuals want to leave a gift to their spouse but ensure that, after the spouse’s death, the gift goes to a specific child. This situation is common in second marriages but also occurs in first marriages where there is a concern that the spouse might remarry and the family assets could end up with the new spouse.

The challenge arises because once a gift is given, it’s absolute. The will-maker cannot control what happens to it after their death. If the spouse inherits the gift, they can give it to anyone they choose, either during their lifetime or through their Will.

How Do Mutual Wills Work?

This is where Mutual Will come into play. A Mutual Will is a contractual agreement between two Will makers. They agree to distribute property in a specific way. These Wills cannot be changed without notifying the other party, and once one party dies or becomes incapacitated, the agreement is locked in and cannot be altered.

Example

Tyler has a son named Brad. He recently married Marla, who has her own child, Helena. Marla and Brad don’t get along. Tyler wants to leave his prized property, “The Paper Street House,” to Marla but with the condition that she passes it on to Brad after her death. He worries that Marla might change her Will and leave everything to Helena.

With a standard Will, Marla could change her Will at any time without Tyler’s knowledge. However, with Mutual Wills, Marla:

Cannot change her Will without telling Tyler, allowing him to change his Will to leave the house directly to Brad.
Is prevented from changing her Will after Tyler’s death or once Tyler is no longer capable of making a Will.

Dangers of Mutual Wills

Mutual Wills have some risks, such as:

Once set by death or incapacity, they can’t be updated to reflect new circumstances, potentially leaving the surviving spouse with an outdated Will.
They could result from one party pressuring the other.
They don’t account for changes due to aggressive or disqualifying behavior by a beneficiary.
The surviving spouse might not be able to change their Will even if a beneficiary goes bankrupt, meaning the estate could go to the bankruptcy trustee.
They can impact the rights of claimants in family provision applications.
The surviving spouse might take steps to deplete the asset pool, undermining the Will’s effectiveness.

Alternatives to Mutual Wills

Instead of Mutual Wills, consider leaving the estate to a trust, allowing the spouse to use it while preserving it for the children. Another option is life insurance for the children’s benefit, ensuring the estate can be given without restrictions.

Are Mutual Wills a Good Idea?

Mutual Wills can be useful but should be used with caution. Both parties should seek independent legal advice to fully understand the agreement. Given that lawyers cannot represent both parties in a Binding Financial Agreement, they should not advise both parties in a Mutual Will agreement, as it may restrict one’s ability to gift their estate for decades.

Our Wills and Estates lawyers recommend using Wills only when absolutely necessary. For all questions concerning estate planning and Wills, please contact QBM Lawyers at 5574 0111 or email Peter Muller at @qbmlaw.com.au.