Background

Second marriages are commonplace these days. With that, frequently 2 partners will bring to the new relationship children that each had from their first relationship – whether the first relationship ended as a consequence of separation or death.

From an estate planning perspective, there are a number of ways that a couple can structure their wills in a way that ensures their own children are properly looked after on their death.

Some options include each spouse leaving the other a life interest in their assets on the basis that, on the death of the survivor, all or part of their estate passes to their own children. Other strategies include things like a right to reside in residential premises for life or carefully structured testamentary trusts.

Another option is the use of mutual wills entered into after the parties to a relationship have signed a contract; often referred to as a “mutual wills agreement”.

What are mutual wills?

Mutual wills (sometimes referred to as “contractual wills”) are wills made pursuant to an agreement whereby:

  • parties to a relationship mutually agree to leave assets to the surviving spouse on the condition that assets will ultimately pass to one or more specific beneficiaries; and
  • the mutual wills agreement includes a promise that the parties to the relationship will not change their wills after the death of the first of them to die. In other words, the parties make a contract that they will not change their wills or do anything which might frustrate their wills when one of them has passed.

As stated in a 2010 Queensland Supreme Court case[1], the doctrine of mutual wills is:

Where one party to a mutual wills agreement dies leaving his or her will unrevoked, relying on the other party to observe the terms of the agreement, equity will treat the agreement as irrevocable and will not permit the surviving party to deal with the subject property in a way contrary to the agreement or understanding.

Are they enforceable?

There are many Court authorities that have held that mutual wills agreements are binding and will be enforced by the Courts. Technically a mutual wills agreement cannot prevent the surviving spouse from making a new will after the first party has died but the beauty about mutual wills agreements is that the Courts will intervene in that situation to prevent a fraud.  This is done by the Court ordering that the executors of the last spouse to die will hold property on a constructive trust for the beneficiaries named in the original will.

One of the criticisms of the use of mutual wills is their inflexibility. They mean that the parties are effectively locked into the original agreement about how assets will pass on the death of the surviving spouse.  It follows that if mutual wills are entered into by partners to a relationship late in life then it is more likely that they will achieve their intended aim.  On the other hand, for a husband and wife in their early 40s each with their own children, the strategy is likely to be less attractive given the vicissitudes of life.

Some of the implications – Forster -v- Forster[2]

The Queensland Supreme Court had to deal with a practical implication of a mutual wills agreement in a decision handed down in March in Forster -v- Forster.

In this case the deceased and his second wife, Annabel, had been married for 24 years before Mr Forster died. Both Mr Forster, the deceased, and Annabel had children from their first marriages although they did not have children together.

Mr Forster and Annabel had entered into a mutual wills agreement pursuant to which each left their respective estates to the other on the basis that, after the death of the last of them, the entire estate would be distributed equally between the children of both Mr Forster and Annabel.

This meant that under the agreement Annabel, who survived Mr Forster, was permitted to use the entire estate for herself but was not able to intentionally significantly or substantially diminish the estate by making gifts to, say, her own children. This was specifically addressed in the agreement.

Mr Forster’s son, James, had a poor relationship with his step-mother. He brought an action on the basis that Annabel might substantially diminish her estate to the prejudice of Mr Forster’s own children.  Through his lawyers, James asked his step-mother to disclose her personal assets and liabilities which were the subject of the mutual wills agreement on a regular basis each year and that she provide James with notice before she transferred any property worth more than $50,000.

James did not adduce any evidence to suggest that his step-mother might substantially diminish assets to his prejudice. Rather, he claimed that his step-mother was acting in a trustee position and that as a beneficiary of the trust, he had statutory rights to financial information about the trust.

Outcome

The case involved considerable analysis around the complexities of the law dealing with mutual wills but the upshot was that the Court said there was no specific trust obligation on Annabel. Rather, the trust obligation would fall on her executors when she, in turn, died.  Until her death there was merely a floating trust arrangement that might materialise if her own executor did not properly follow the terms of the mutual wills agreement.  That same argument could apply if there was evidence of James’ step-mother substantially reducing assets of the estate during her lifetime but until that eventuality there was no basis for making any order against her.

What the Court said was that during her lifetime, Annabel was entitled to full enjoyment of the combined estate subject only to her obligation to abide by the terms of the mutual wills agreement.

It followed that the Court refused to impose any obligation on Annabel to account to her step-son for the combined assets of her estate during her lifetime in the absence of clear fraud.

Take-away

The decision is important because of the very considered way in which the Court reviewed the growing case law around mutual wills agreements. But it also is important for clarifying what the obligations are for the surviving spouse given that usually the concern for the terms of a mutual wills agreement is when the last of the 2 parties to the original contract has died.

Accepting the issues around flexibility, particularly for those younger in years, the case is helpful in demonstrating that for some people in a blended family, mutual wills are a very effective way of looking after respective children of prior relationships.

[1] Bauer -v- Hussey [2010] QSC 269 para 15

[2] James Forster -v- Annabel Forster 2022 QSC 30