Mutual wills: proceed with caution

Estate planning increasingly deals with challenging situations. These include blended families, where spouses have children from prior marriages and want to pass on their estate to their own children, rather than their spouse’s children. We are also seeing couples with no children who wish to ensure their respective family members or favourite charities are provided for when they’ve both died.

Trusts are the tried and true method of ensuring capital succession to a client’s desired beneficiaries. For example, a surviving spouse can draw income and the trustees can have power to use capital for the surviving spouse’s benefit, with the remaining capital passing to the client’s chosen beneficiaries when the spouse dies.

However, trusts impose many restrictions and may not be desirable. Another option is mutual wills. One caveat, though: many practitioners have reservations about mutual wills’ effectiveness and reliability compared to trusts, given the paucity of case law dealing with them.

Mirror wills versus mutual wills

Firstly, it is important to understand the difference between “mirror” wills and mutual wills. Mirror wills, typically used by spouses, create parallel provisions to provide for the other spouse and their children (and contingent beneficiaries if there is a common accident), as well as in the choice of executors and guardians for minor children, among other matters.

A mutual will is similar to a mirror will in that the spouses’ wills often mirror each other, though that’s not required. A mutual will differs in that, upon the first spouse’s death, the surviving spouse cannot change their will except as agreed upon. Creating mutual wills requires the spouses to deal with their property as they have agreed and to vary their wills only as allowed by their agreement—including after each other’s death.

While case law supports that such an agreement can be made in writing or orally, oral agreements are problematic to prove. As part of proper estate planning, the spouses’ intentions, the property subject to the agreement, and each spouse’s rights and obligations—including with regard to changing their will, whether before or after the death of the other spouse—should be clearly set out in a written agreement.

Mutual wills can be a useful tool for spouses who are comfortable waiving their right to make changes in the future, except as agreed upon. Mutual wills provide a legal basis to ensure specific plans are carried out.

Mutual wills and case law

While the scarcity of case law involving mutual wills creates reservations for some practitioners, the body of case law is growing. If a surviving spouse breaches the agreement, courts will generally impose what’s known as a constructive trust. Such a trust would pass property that should have passed in accordance with the spouses’ agreement to the spouse’s intended beneficiaries.

By doing so, the court will ensure that the surviving spouse’s promise is enforced and that he or she is not allowed to deviate or withdraw from the agreement after the first spouse’s death. The court will also ensure the predeceased spouse’s intentions are carried out to benefit their intended beneficiaries.

Many of the cases are concerned with establishing whether or not there was an agreement where no written agreement was entered into.

A constructive trust was imposed in Hall v. McLaughlin Estate (2006, Ontario SCJ 198), where two spouses executed mirror wills leaving everything to the survivor. The residue was to be divided equally among their four children (each spouse had two children from a prior marriage).

The wife died, leaving everything to her spouse. Upon the husband’s death, the wife’s children claimed the husband was in breach of his mutual wills agreement after leaving the majority of his estate to his two children.

The court found there was clear evidence to support that the couple intended to enter into an agreement that the survivor would divide the residue of their estate into two equal shares: one for each set of children. The court imposed a constructive trust on one half of the net value of the husband’s estate for the benefit of the wife’s two daughters, in equal shares.

A concern with the use of mutual wills is that spouses are locked into their will structure, creating inflexibility in the future if they remarry, have other obligations or there are changed circumstances that weren’t anticipated. A carefully drafted agreement can account for many of these concerns, so it is important to seek expert legal advice.

While trusts remain the most reliable method of ensuring capital succession when a surviving spouse dies, people who want to avoid the restrictions of a trust after their spouse dies can consider mutual wills.

Margaret O’Sullivan is founder of O’Sullivan Estate Lawyers LLP.