Written by Special Counsel Leigh Adams
Our clients are hard workers. They really are. Quite understandably, they want a business lawyer who can draft their contracts to help protect their assets. That’s why they use our business succession documents – to ensure that their assets are protected and that their business survives (and thrives!) if one or more shareholders should leave.
They understand that having a document that manages a shareholder’s entry into the business should also deal with and manage the shareholder’s exit.
But what about having a document that protects all your business assets upon your death? We have a document for that too. It’s called a deed of mutual wills.
What is a deed of mutual wills?
It’s used when preparing the wills of spouses. We draft them to keep property in the family and they are particularly helpful in blended families because they can provide benefits for the surviving spouse whilst also ensuring that the property remains in the will maker’s bloodline.
How does this work for you?
The concept of blended families is continuing to change. The modern day blended family where there can be second third and fourth marriages can create issues requiring specific caveats. Nevertheless, the main point to remember is that the deed imposes on the survivor of the union an obligation not to change their will after the first to die.
The great thing about having a deed of mutual wills is that it enables the will maker to provide a benefit for a current spouse while preserving assets for children from a previous relationship.
Furthermore, the surviving spouse can have the benefit of their assets during their lifetime but ultimately the assets are protected for the children of the first marriage.
Moreover, a deed of mutual wills provides peace of mind because you can be assured that not only will your spouse be looked after, but also your children from any previous relationships will be too.
In addition, the deed of mutual wills, once communicated to the family members involved, enables those family members to set their own expectations.
It is very common for each will to which the deed relates, to provide that the survivor of the union owns everything (included what’s inherited from the first to die), but when the survivor dies, they are to bequeath what’s left in the manner originally agreed upon.
The Courts are quick to make an order preventing the survivor from rendering their promise nugatory by making substantial gifts during their lifetime to persons not originally intended to benefit from their estate.
A recent example was where the survivor set up a family trust with the inheritance he received from the first to die. The beneficiaries of the family trust were different from those agreed to in the wills attached to the deed of mutual wills.
So if you, as a beneficiary, are aware that your step-father or step-mother is thinking of doing something like this, come and see us as soon as possible. The Court will step in and make appropriate orders.
It is difficult to claw back assets once they have been disposed of – prevention is better than cure.
I wasn’t there – I didn’t know
This statement of course begs the question – how can you properly instruct a lawyer to help you if you are unaware of any breach of the deed?
The answer is easy: ensure the relative who is making the will gives you a signed copy of the deed for mutual wills after it has been executed. Transparency is vital in this regard.
A trap for young players
However, the courts distinguish between having an intention to defeat the original promises made in the deed of mutual wills, and the mere intention to reduce the value of the estate which will pass by will – for example gifting property during the survivor’s lifetime to a business start-up (which ultimately fails) or where the survivor spends excess income and/or capital in a way that is simply a reflection of their lifestyle (expensive overseas trips or fast cars).
Ultimately, the extent to which the survivor can deal with the property during their lifetime without beaching the mutual will depends on the nature of the promises made in the deed.
Other strategies for asset protection on death.
If there is a large age gap between the spouses and say, one of the spouses is closer in age to the step children, then it can often be better to make provision for them immediately upon death rather than making them wait till the younger spouse dies.
In addition, life insurance (whether or not within superannuation) and capital protected testamentary trusts within wills can each have an important role as well.
In NSW the “notional estate” provisions can apply to superannuation even if it is paid to persons not included in the will and so care needs to be taken when dealing with superannuation.
Other strategies regarding asset protection include using joint tenancy family property holdings and a family trust.
If you have any queries about Mutual Wills or Asset Protection upon death, don’t hesitate to contact Special Counsel Leigh Adams for an obligation free discussion on (02) 9570 7844, or via email at LWA@owenhodge.com.au.