Mutual Will Agreements (MWAs) are experiencing a surge in interest amongst practitioners, as Client circumstances become ever more complex, estate litigation flourishes and the value of estates and associated structures continue to increase. Lee-Ann Cartoon, Principal of Succession Solutions Perth takes us through the current state of play.
A MWA is, at its essence, a mutual contractual agreement as between parties, as to how each will dispose of some or all of their assets by Will, and in reliance on this agreement, each party so executes their Will. The common law origins of MWAs can be traced to the English case of Dufour v Pereira (1769) 21 ER 332 (Dufour).
MWAs are ordinarily revokable by all parties whilst alive, where the agreement so allows, including by way of mutual agreement, or unilaterally, so long as adequate notice is provided where revocation is unilateral and the other party has the opportunity to likewise revoke.[1]
As discussed further below, MWAs are effectively enlivened on the passing or loss of capacity of one of the parties, where that party fulfilled their obligations under the MWA (i.e. their Will and actions remained consistent with the terms of the MWA up to loss of capacity/death) and thereafter the MWA is generally irrevocable.[2]
MWAs are, perhaps understandably, a somewhat controversial aspect of estate planning, with not all legal practitioners embracing MWAs as part of their estate planning toolbox, due largely to the potential challenges in robustly documenting, as well as enforcing, MWAs.
Key Concepts
Whilst it is common to see MWAs in respect of Mirror Wills, dispositions under each Will need not be like in order for a MWA to apply. Dispositions under a MWA also need not cover the whole of the estates of each respective testator, and a well drafted MWA will clearly identify those assets within the scope of the MWA, often by reference to a detailed schedule, and those assets excluded from the MWA. An added layer of complexity worth considering in this regard, is how a given MWA interacts with “non-estate” assets, such as life insurance and superannuation death benefits paid outside of the estate, as well as discretionary trust assets.
It is not necessary for an express, documented agreement to exist alongside Wills, in order for a MWA to arise. If there is sufficient evidence to establish that the testators reached an implied agreement not to change the relevant distributions under their Wills on the passing of the first testator, then it is possible for a Court to find that an implied MWA arose, as per Hussey v Bauer [2011] QCA 91.[3]
Best practice would dictate however, that an express MWA should be prepared where possible, due to the difficulty in proving an implied agreement. As Latham CJ in Birmingham v Renfrew (1937) 57 CLR 666 (Birmingham) notes “those who undertake to establish an agreement assume a heavy burden of proof. It is easy to allege such an agreement after the parties to it have both died, and any court should be careful in accepting the evidence of interested parties upon such a question”.
Further, Latham CJ in Birmingham at 675 explains “the mere fact that two persons make what may be called corresponding wills in the sense that the existence of each will is naturally explained by the existence of the other will, is not sufficient to establish a binding agreement not to revoke wills so made”.
In this regard, we look to reliance by all parties on the terms of the mutual agreement, and reciprocity of provisions/dispositions,[4] to establish that a binding agreement in the nature of a MWA, was in fact formed.[5]
Enforcement of MWAs
This essential element of reliance, then lends itself to equitable findings of unconscionable conduct and equitable fraud, where the last surviving testator, in their capacity as a fiduciary, disposes of their assets in a manner inconsistent with the terms of the binding MWA (i.e. by way of new Will, substantial gifts or a newly created trust) and in circumstances where the first testator has died and disposed of their assets in accordance with the agreement.[6]
The terms of the MWA are of course paramount in making such an assessment of inconsistency.[7] Any limits on the survivor’s dispositive power and instructions in relation to specific assets (i.e. the sale of a primary residence), should be clearly stated in the MWA.
Equitable remedies (which attach to the relevant property the subject of the MWA, as opposed to the agreement itself) include injunctive relief (including lodgement of a caveat) for anticipatory breach of the MWA, disgorgement of property, and specifically enforcing a MWA through the imposition of a constructive trust. Damages may also arise at law for breach of contract, calculated by reference to the value of the interest lost to Plaintiff.[8]
We note that where a beneficiary is seeking to enforce a valid MWA and a later contrary Will has been prepared, whilst this later Will would ordinarily correctly be submitted for Probate, the effect of the valid MWA is that the Executor under the last Will, will hold the relevant part of the estate the subject of the MWA, on trust for the beneficiaries in accordance with the terms of MWA. [9]
As Dixon J notes in Birmingham at 689, MWAs create a “floating obligation, suspended during the lifetime of the survivor” that descends upon the assets at death and crystallises into a trust.
The most recent description of this ‘floating obligation’ was provided by Ryan J in Forster v Forster [2022] QSC 30 (Forster) where she observed at 79, that the surviving testator is during her lifetime the “absolute owner of the deceased’s property and (of course) her own property, subject to a floating obligation to deal with it only in accordance with the MWA (which may see her use some of it up); which obligation crystallises upon her death into a trust over the property which remains to ensure its distribution as per the terms of the MWA.”
Ryan J in Forster continues at 118 that equity will intervene to prevent a fraud, however if the survivor adheres to the MWA, there is no need for equitable intervention to ensure its performance (including by way of declaration of trust) because the terms of the contract will have been fulfilled.
Practical Impact
The focus of MWAs tend to be on the disposal of assets on passing, however as noted above, consideration as to how assets the subject of a MWA are utilised during life, is also critical. A well drafted MWA may well allow the surviving testator to consume the relevant estate assets during their lifetime, in order to maintain the standard of living to which they had become accustomed during the life of the first testator to pass, whilst also preventing the surviving testator from entering into arrangements that have the sole or dominant purpose of diminishing the value of their estate.
As observed by Callinan J in Barns v Barns [2003] HCA 9 (Barns) at 57, a testator is ordinarily free of dispose of their assets the subject of a MWA during life as they wish, provided the second testator is not seeking to “diminish or devalue the first testator’s estate by acts calculated to produce that result”. Callinan J further observes in Barns that the “fact that the surviving contracting party, who is the beneficiary under the will of the first of the two to die, may use, and indeed even ultimately use up in their entirety the assets passing under the first will, provides a reminder that in human affairs, even in legal affairs, perfection, and the complete effectuation of intention are sometimes not possible.”
Utility of MWAs
MWAs are oft utilised when planning for blended families, whereby both parties wish to provide for children from a previous relationship. MWAs also have merit when dealing with traditional family structures, as they can provide a surviving spouse with somewhat of a legal shield in respect of their assets vis a vis a new third party. It should be noted however, that in Barns the High Court held MWAs cannot be used to defeat a potential Family Provision Act claim, as per Gleeson CJ at 33 “The effect of the legislative restriction on freedom of testamentary disposition cannot be avoided by a promise to make a certain disposition”. It is interesting to note that some commentators believe Barns should be largely confined to its facts in this regard.
Whilst a strong criticism of MWAs is their complexity, this complexity must be viewed in context. Estate planning inherently entails a degree of complexity and uncertainty, as advisors attempt to plan for situations that may not arise for years, if not decades. When MWAs are compared with alternative arrangements that seek to achieve similar results, such as life interest and right of residence trusts, such criticism of complexity becomes more opaque. As with any legal document, practitioners must clearly understand their Client’s objectives, and appropriately draft the MWA to capture these objectives with clarity and technical robustness. Regular review whilst all parties are alive and have capacity is also required, to ensure the MWA remains fit for purpose and continues to reflect the mutual objectives of all parties.
[1] Bigg v. Queensland Trustees Ltd. [1990] 2 Qd R 11 (Bigg); Dufour.
[2] Birmingham v Renfrew (1937) 57 CLR 666 (Birmingham); Low v Perpetual Trustees WA Ltd (1995) 14 WAR 35.
[3] See also Kennedy & Hunt v Griffiths [2011] QSC 369; Radalj v Di Francesco & anor [2003] WASC 57 and Birmingham.
[4] Per Lord Camden in Dufour.
[5] We note for completeness that a survivor is still bound by the terms of a MWA, even where minimal value moved under the Will of the first to pass (Re Dale; Proctor v Dale [1994] Ch 31).
[6] See Osborne v Estate of Osborne [2001] VSCA 228 [24]).
[7] Barwick CJ in Palmer v Bank of New South Wales (1975) 133 CLR 150; Birmingham; Fazari v Cosentino [2010] WASC 40.
[8] Schaefer V Schuhmann (1972) AC 572, at p.589-90; Bigg; Synge v Synge [1894] 1 QB 466.
[9] See for example Staib v Powell [1979] Qd R 151; Lord Camden in Dufour and Dixon J in Birmingham.
Lee-Ann Cartoon is an experienced tax and succession planning lawyer. She has worked throughout Australia and the UK advising clients ranging from global financial institutions and multinational energy and resource companies to high net wealth individuals. Lee-Ann’s experience has given her an appreciation of the importance of approaching any matter commercially, logically and with the client’s end goal front of mind. Lee-Ann has developed a particular interest in the area of complex estate and succession planning and regularly advises and presents across these areas. Connect with Lee-Ann via LinkedIn.
