Mutual Wills: what they are and when to use them
A mutual will agreement is an arrangement where two people each agree to bequeath property in a certain way conditional upon the other person bequeathing property in a similar or complementary fashion. This type of arrangement may be used in second relationships where each partner leaves his or her estate to the other with subsequent division of property between the children of both parties. These arrangements are also becoming more common to direct family businesses and family farms in accordance with estate plans.
To create a mutual wills arrangement, the two wills and a deed entered into between the parties combine to form a binding agreement whereby each testator promises to bequeath particular property in a specific manner and not to alter the disposition without notice to the other party. The consideration for the promise is the other testator’s corresponding promise. During the lives of the parties mutual withdrawal from the agreement is possible so either party may revoke his or her will provided notice of the revocation is given to the other party. After the death or loss of capacity of one party no mutual withdrawal is possible. From this point withdrawal becomes a breach of trust for which equitable remedies are generally available. There is a constructive trust over the affected property on the death of the first to die and crystallises on the death of the second person to be enforceable as a breach of trust.
Prior to 2003 it was thought that such a trust might prevent possible action being brought under the Inheritance (Family Provision) Act 1972 (IFPA) in respect of property subject to the trust. The High Court decision in Barns v Barns changed this as the majority stipulated that the relevant property did pass to the estate of the first to die and the trust could only operate to the extent the IFPA did not. That is; the contract still stands but each testator has fulfilled it by making a will in the agreed manner and not revoking it. There is no requirement that property actually pass as intended. Practically, this means a mutual wills agreement is not an effective means of bypassing family provision legislation.
The agreement can bind a testator in different ways. He or she may be required to:
1. make a particular will no part of which may be changed; or
2. add a particular clause or clauses to his or her will which must be replicated in any future testamentary disposition; and
3. refrain from dealing with the subject property during his or her lifetime.
A mutual wills agreement without this third requirement may be worthless as the individual or his or her attorney could simply sell or gift the subject property during their lifetime and so adeem the relevant provision in the will.
It is also important to consider from a practical perspective exactly what is the subject property. If it is everything that is owned then the survivor has no legal right to spend or gift or otherwise deal with any significant property. Clearly, this could be untenable in practice, for example, a person may need to pay a deposit to enter a nursing home.
To ensure that you have a binding and useful mutual will arrangement care should be taken in defining the property that is the subject of the mutually binding promise. Each testator must give clear instructions on the extent to which they wish the mutual agreement to be legally binding and this should be clearly and precisely documented in each will and in the deed of agreement.
Although by no means a solution to all estate planning issues a well thought out and carefully drafted mutual will arrangement can assist in the process of ensuring that estate plans are carried out as intended and that each person’s intentions are clear to all concerned. If you would like more information on mutual will arrangements or other estate planning arrangements, please contact Julie Van der Velde.