Estate planning can be complex, especially for blended families where there is a need to balance the interests of a surviving spouse and children from previous relationships. One tool that can help provide certainty and fairness in estate distribution is a Mutual Will Agreement. However, while these agreements can offer security, they also come with legal complexities and potential risks.
What is a Mutual Will Agreement?
A Mutual Will Agreement is a legally binding contract between two people—usually spouses or partners—agreeing to make identical or consistent wills that cannot be changed after one party passes away. Unlike standard mirror wills, which can be freely altered, a mutual will agreement creates a legal obligation for the surviving party to maintain the agreed-upon distribution of assets.
This type of agreement is commonly used to protect the inheritance of children from previous relationships. Without it, a surviving spouse could change their will after their partner’s death, potentially disinheriting stepchildren or diverting assets elsewhere.
How Does a Mutual Will Agreement Work?
- Both parties sign a contract confirming that their wills are created based on the agreement.
- The agreement states that neither party can amend or revoke their will without the other’s consent while both are alive.
- After one party dies, the surviving party is legally bound to maintain the agreed-upon distribution of assets.
- If the survivor tries to change their will or distribute the estate differently, the intended beneficiaries can challenge the estate in court.
Example Scenario
John and Sarah are in a second marriage and each have children from previous relationships. They agree that upon the first death, all assets will pass to the surviving spouse. After the second death, the estate will be equally divided among all their children.
To prevent any future changes, they sign a Mutual Will Agreement. After John passes away, Sarah is legally required to follow this agreement and cannot amend her will to exclude John’s children.
Key Considerations and Risks
While a Mutual Will Agreement provides certainty, it also has drawbacks that must be carefully considered:
1. Legal Complexity and Enforceability
- The agreement must be properly drafted to ensure legal enforceability.
- Courts may refuse to uphold the agreement if the terms are unclear or unfair.
2. Changing Needs of the Surviving Spouse
- The surviving spouse may need access to estate assets for medical care, financial hardship, or changing life circumstances.
- A rigid agreement could cause financial difficulties if it doesn’t allow flexibility.
3. Family Disputes and Tensions
- Conflicts can arise between the surviving spouse and stepchildren, especially if financial pressures or new relationships come into play.
- Beneficiaries may feel entitled to assets earlier than intended, leading to disputes.
4. Asset Depletion Risks
- The surviving spouse still has control over assets during their lifetime, meaning they can sell property or spend money—even if they can’t change their will.
- This could result in the intended beneficiaries receiving little or nothing from the estate.
5. Enforcing the Agreement
- If the surviving spouse breaches the agreement and alters their will, legal action may be required.
- Court proceedings can be costly, stressful, and time-consuming for beneficiaries.
6. Risk of Family Provision Claims
- A Mutual Will Agreement does not prevent a family provision claim, where an eligible person (e.g., a child, spouse, or dependent) challenges the estate for greater provision.
- Courts can override the agreement if they determine that the deceased failed to provide adequately for a dependent.
Alternatives to a Mutual Will Agreement
Given the potential drawbacks, individuals should explore alternative estate planning tools that provide flexibility while still protecting intended beneficiaries:
- Gifting Assets During Lifetime – Transferring assets to children or trusts before death reduces the risk of post-death changes.
- Life Interest or Right to Reside – Instead of giving all assets to a surviving spouse outright, assets can be placed in a trust that allows them to live in the home or receive income, while preserving capital for children.
- Superannuation Binding Death Benefit Nominations – Ensuring that superannuation benefits go directly to chosen beneficiaries and cannot be altered by the surviving spouse.
- Testamentary Trusts – A structured way to provide for a surviving spouse while ensuring assets eventually pass to children.
- Binding Financial Agreements (BFAs) – Also known as prenuptial agreements, these can outline asset distribution and protections for children without the strictness of a mutual will agreement.
A Mutual Will Agreement can be a useful estate planning tool for those wanting to protect their beneficiaries, particularly in blended families. However, they require careful legal drafting and consideration of the surviving spouse’s future financial needs. Given the risks involved, exploring alternative strategies may provide a better balance between certainty and flexibility.
If you are considering a Mutual Will Agreement or looking for tailored estate planning advice, contact Nurture Law to discuss the best approach for your unique circumstances.
