07 Aug

There is a common misconception that just because spouses, or other persons, prepare similar Wills together the Wills are not only mirror or reciprocal but also automatically mutual. This is not correct.

Without anything more, in Canada Wills are revocable. This means a couple, siblings, or parent and child could prepare Wills with mirror provisions and then one of them change his/hers a while later. However, if there is a contract between the parties restricting the ability to make subsequent changes to the jointly prepared Wills, then the Wills can be said to be mutual rather than simply mirror.

In order for the contract to be binding, it has to meet the usual rules for a valid contract and should ideally be in writing. Additionally, where the mutual Wills are being made between spouses, the contract should comply with the rules for a valid domestic agreement in the applicable jurisdiction. These additional requirements typically include full financial disclosure and independent legal advice.

Why do people do mutual Wills (and estate planning)? Typically it comes up in second relationship situations as an attempt to ensure that one person’s children or other family are not cut out after they die. However, mutual Wills can also be used between other groups of people like siblings, or a parent and child, who are sharing a home later in life as well as financial assets and have respective people and charities they want to benefit. The first person to die may leave some or all of their estate to the survivor on the understanding that whatever is left will be divided as the parties agreed. If the survivor were to change his/her Will, the joint planning would be undone.

Given that property can pass by rights of survivorship and beneficiary designations, the notion of mutual Wills is actually broader and may reflect an expectation of mutual estate planning. Therefore, care should be taken to draft an appropriate form of agreement to prevent the shared plans from being frustrated.

What happens if one person does not follow the rules? The main remedy, assuming it is not possible to undo the change, is to impose a constructive trust on the affected assets to prevent them from passing to the wrong persons or entities. This means the person who gets the asset, but should not have it, holds it for the benefit of the person truly intended to receive it.

Generally, it is thought that the constructive trust is imposed on death so that each person can deal with their respective assets while alive, subject to the terms of the agreement. However, this poses a potential problem in terms of legal responsibilities the surviving person may have such as to a new spouse. The deceased may have wanted the bulk of his/her estate go to the children of his/her first relationship after the second person dies but, if the survivor remarries or enters into a common law relationship, that person’s new spouse/partner may have rights that trump gifts to children or others.

The take away is that while mutual Wills (and estate planning) can be useful, there must be a valid contract in place for the strategy to be effective but it can still be overridden in certain circumstances. As a result, trusts may offer a better solution for some people.