Have you brought more finances to your relationship than your spouse?
It is not uncommon to meet couples in a relationship where one has more ‘finances’ to bring to the table, than the other. Existing family ties that each person brings into the new relationship will also form part of this picture, as well as non-financial contributions.
So, when we are approached by people in this scenario, we are frequently asked, “how can my Will give something to my spouse, but also make sure there is something left over for the children of my first relationship?”
There is a broad range of potential solutions, which are largely influenced by: what the asset ‘pool’ consists of, how many people rely upon those assets for day-to-day survival, existing obligations and debts, familial ties, previous gifts and so much more.
The recent decision of Ryan, J in the Supreme Court of Queensland in the case of Forster v Forster  QSC 30, reminds legal advisers of the risks and potential complications a Mutual Will can invite.
What is a Mutual Will?
Essentially, a Mutual Will is a binding contract that you enter stating you agree to gift assets in your Will, in a pre-agreed manner. Contrary to what you might think, it does not mean you ‘cannot’ change your Will – you can, but you would then be in breach of the ‘contract’ you have entered agreeing to pass assets in a certain way.
Obviously, once one of the ‘agreeing parties’ dies, this cements that agreement in place and the survivor (or those who were meant to benefit under the mutually agreed terms) will have a right to seek compensation if the contract is not honoured. To specifically backtrack from a previous ‘mutual will’, even while both of you are still alive, requires certain steps to be taken to ensure it is done properly and without negative implications.
Step-Son versus Step-Mother
In Forster v Forster, a 24-year relationship between a couple (both with children from pre-existing relationships, obviously long since grown up) entered a mutual will agreement that saw them providing the majority of their estate to their surviving spouse, with an agreed equal distribution between all of their children.
Unsurprisingly, the case speaks of the hostility between one step-son and his father’s surviving wife, Annabel. The publicly available judgement discloses that Annabel received an absolute entitlement to their home valued at approximately $3,000,000 (which in Succession and Property Law is known to have been an asset ‘not’ dealt with by the Will as it was held by her as a joint tenant and received by her absolutely), along with the majority of the remaining estate.
Essentially, James, the step-son was not happy to just rely upon his step-mother’s confirmation she intended to honour the Will, dividing the balance between all the children and step-children, and instead wanted to receive a yearly financial update to keep an eye on things.
How can an expectant child safeguard their inheritance?
Options available to the father which may have avoided this dilemma include:
- making an outright gift to the children;
- gifting a life interest to the spouse with eventual assets passing among children;
- creating a portion of assets that was jointly controlled by the step-mother and children (although, with inherent hostility this is never a great idea); or
- exploring ways that he could minimise the assets that the son could make a claim upon.
The lessons to be learnt from this public family dispute are many, including that there is not a perfect solution. Perhaps a clearly explained plan prior to death may have reduced hostilities and lead to a clearer plan that satisfied all. Or perhaps the father could have pursued further steps to make sure his son did not cause this upheaval, resulting in a greater expense to all and increased hostilities.
In this case, the step-son did not trust that the step-mother would honour agreement, not to ‘substantially diminish’ the estate. There was no evidence produced suggesting that she would diminish the estate, nor that she intended to do so. But this is certainly not an uncommon query for clients to raise when faced with a deceased parent leaving all assets to a spouse, with children having to wait for their death before inheriting. It reinforces the need to explore the options in each personal case, to achieve the best result.
Because there was no evidence of a breach of the agreement, combined with the clear intention of the dying party that his spouse have ‘absolute enjoyment’ without substantially diminishing the value, the step-son was denied his claim. The Court determined that the step-mother had no obligation to ‘account’ to the children on her financial position, leaving the step-son with limited choices, except to wait until his step-mother passes away and then consider his options.
The other side of this coin is that the spouses had 24- years together, they had a certain high standard of living and had agreed to safeguard this for each other in the form of these mutual wills. The disappointing element is that the survivor then is forced to respond to legal demands that she provide a financial account to the step-son on a yearly basis, so that he can verify if/when she ‘substantially diminished’ the estate – effectively putting a caveat on all and every transaction that she ponders throughout the remainder of her life.
Perhaps this was the intention, perhaps not. Neither position is one any of us might like to find ourselves in.
Benefits and Disadvantages
As with most decisions we make in life, you weigh up the benefits you and your loved ones will receive from entering an arrangement of this sort, versus the complications it can produce.
There is no set form for this type of ‘mutual will’ agreement, and each scenario will differ depending upon the wording employed by those drafting your agreement and Wills. The very nature of trying to ‘define’ what this may mean for you can lead to complications and increased familial dispute. For some, there are not sufficient assets to divide in a way that suits all involved. For others, their wish to allow their surviving spouse a right to absolute enjoyment of assets without regard or pressure from children or step children may suggest they veer away from this path, but for others a carefully drafted document may be the best solution to their legacy complications.
The lesson in this personal situation is to seek legal advice when making these decisions, and assess the potential end result of each proposed alternative. The time and money you invest in this now, can save you and those you love a lot of unnecessary expense in dispute resolution/litigation, not to mention heartache.
A good Estate Plan should always clarify whether or not your Wills are intended to have a mutually binding element, lest you mistakenly enliven an application of this nature.
Are you ready to develop a clear and considered Estate Plan?
Tammy Parsons is a Senior Associate in our Wills and Estate Planning team. Contact Tammy on firstname.lastname@example.org, call (07) 3226 3968 or connect with her on LinkedIn.
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