Would Sir or Madam like a Contract “to go” with those Mutual Wills?

Many couples make Wills on the same terms – they choose the same executors, beneficiaries, and asset distribution. However, there is nothing to stop one – or both – changing his or her Will to dis-inherit beneficiaries that the couple had jointly understood would benefit on death.  Without a formal contract to make mutual wills, it is very hard to prove any enforceable rights, and hence for the excluded beneficiaries to be compensated for their loss.

Spouses, either married or de facto, often leave their estates to each other and trust their partners to divide the estate in the discussed terms between their children. However, family agreements are generally non-binding – the promises made in families do not usually satisfy the tests to prove the elements of a commercial contract. The risks are particularly acute where there is a blended family, or where the surviving partner establishes a new relationship – in both cases, the survivor can change his or her Will to favour his or her own children, or new partner. The take-away from this article is that a formal contract to make mutual wills can ensure that property flows to the intended, mutually agreed upon, beneficiaries.

In a nutshell:

Once you sign the Contract to make Mutual Wills, any changes made to your Wills will require the consent of your partner. If you later change your Will without the consent of the other, the beneficiaries under the Will can enforce the prior Will by suing the estate of the deceased.

Commonly, the Contract to make Mutual Wills includes a term preventing the surviving spouse from changing the Will. This locks in the agreed asset split on death.  It does not lock in an asset split on separation or divorce – to do that, you need a binding financial agreement under the Family Law Act 1975.

Why agree to make a Mutual Will supported by a Contract?

If you have a Mutual Will supported by a formal contract, your property will pass as you intended.  You can overcome unintended outcomes, that might otherwise occur should your partner change their will, re-marry, re-partner, or have more children with someone else.  Mutual Wills adopt many structures, including, leaving property on trust for the use and enjoyment of the spouse for his or her life, with nominated children receiving nominated assets or capital and any remaining income when the life estate ends. Alternatively, each will maker might exclude a spouse and direct the estate to other beneficiaries. Mutual Wills supported by a contract can also effectively operate to achieve the same result as severance of a joint tenancy, so that even where a survivor gets property by joint tenancy survivorship, on the survivor’s death, the nominated beneficiary gets the benefit that would otherwise have been lost to the joint tenant.

The downside of contracts to make mutual wills is obvious: you join yourself irretrievably to a deal that just might not work over the long term. One way to deal with this is to provide that the contract is only effective until the parties separate, or to limit the assets captured by the contract to those in the possession or control at the date of death or separation or divorce.

Contact Peter McNamara for any more information about this critical Estate Planning tool.


Source: Written by  Peter McNamara, Partner of Clark McNamara Lawyers, Sydney