Having the right kind of will is crucial in blended families

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In estate planning, we can choose the kind of will that works for our family and business situations. Two of these are mirror wills and mutual wills agreements.

How do they work, what are the advantages and disadvantages of each, and when would one be more beneficial than the other?

Mirror wills

One of the more common varieties is the mirror will. They are generally created by partners or married couples that name each partner as the main beneficiary of each other’s estate.

“The reason we call it a mirror will is because it’s a very similar plan being applied toward both parties, and usually we’re dealing with similar assets,” says Sherif Rizk, counsel with Low Murchison Radnoff LLP in Ottawa. Those assets are distributed in accordance with the same plan, he says, so they leave everything to each other, and if they don’t leave it to each other, then probably it’s left to the couple’s children.

Mirror wills seem simple enough, but in blended families they can be a challenge. “It really depends on the relationship blended families have with each other,” says Rizk.

Andrew Higdon, senior associate, estates and trusts, at KPMG Law LLP in Ottawa, says mirror wills tend to be more common in first marriages. For success in blended families, they depend heavily on the level of trust among all partners involved.

“You’re playing Russian roulette,” Higdon says. “Whichever one dies first, loses. The person who survives and dies last has the final say to determine where all the assets go.”

Those assets might not go to the original beneficiaries as planned. As Higdon says in a recent paper on estate planning in blended families, the original couple could opt for mirror wills again, and name their collective children as equal beneficiaries, but there’s no guarantee that their new partners will adhere to the will if they outlive them.

That’s because surviving spouses have every right to update and change their wills if they are mentally competent and have not been coerced.

Mutual wills

If a couple wants to ensure that the assets will go to their intended beneficiaries, they can write a mutual wills agreement. That’s when two wills are written and a separate legal contract prevents changes to them without the agreement of both parties. These are separate documents, so you have your wills and the mutual will agreement.

You’re playing Russian roulette. Whichever one dies first, loses.

Andrew Higdon, KPMG Law

Once one partner or former partner dies, the will is irrevocable and locked in. The surviving (or former) partner cannot make changes.

Higdon says mutual wills can prevent a surviving spouse from regifting an inheritance, but this kind of estate planning has downsides. If the surviving spouse lives for years or decades more and the estate grows in size, they have no freedom to designate to other beneficiaries.

Creating an agreement that is flexible enough to allow adjustments as family circumstances change is a challenge, but it can be done, say both Higdon and Rizk.

Because the mutual will agreement is separate from the wills, you can clarify which assets should go to which beneficiaries, Rizk says.

“It’s two separate documents being drafted possibly to benefit different beneficiaries,” he says. “But there’s this common spirit of cooperation, so to speak, between the two to say, ‘In my will I’m going to be leaving X, Y and Z to my children. In exchange, in your will, you’re going to leave ABC to your children, so that there are no issues.”

Problems can arise, however, when a mutual wills agreement is not clearly defined. Cases such as Lavoie v. Trudel and Rammage v. Roussel Estate are good examples. In both cases, the surviving spouses changed their wills, leaving out children from their spouse’s previous relationship. In short, these cases highlighted the importance of having a clearly defined, legally binding mutual wills agreement rather than what could be interpreted as a vague agreement.

Spending all the money

While the surviving spouse has to adhere to the terms set out in a mutual wills agreement, there’s nothing stopping them from spending all the money, says Higdon. If the surviving spouse depletes the assets, however, you do have a “personal right of action” in court, he says.

The beneficiaries who would have benefitted from the terms set out in the agreement would have to take the person to court and show that the terms of the contract have been violated, and ask for recourse.

“So you’re always relying on that court mechanism to be able to recover, whereas with the spousal trust, you can meter it out,” says Higdon. “You can prevent the misuse from happening up front. That’s the difference in terms of enforcement mechanisms.”

Spousal trusts

Because of the complications that can arise from mutual wills agreements, why not consider a testamentary spousal trust? The surviving partner or spouse is supported for the rest of their life and the remaining assets are passed on to the beneficiaries after their death.

It’s definitely an option, says Higdon, but success depends on the personalities involved and who is established as a trustee. Conflicts could arise over issues such as how much to spend on maintaining an asset such as the family home.

If an institutional trustee is chosen, like a corporate trust company, you will definitely have a neutral third party. “But now you’ve got someone who’s extracting fees, so there’s going to be some costs associated with doing that,” he says. “Additionally, it’s still somebody with whom the spouse is going to have to negotiate for costs.”

Joint wills

In a joint will, couples express their wishes on one document. These types of wills have some similarity to mutual wills but they are not legal in Ontario and Quebec and are not commonly used across the country.

Which works best?

Rizk says a mutual wills agreement may make the most sense when the blended family structure is contentious and complex.

“A will is supposed to provide clarity to the executor as well as to the beneficiaries,” he says. There is an assumption that families including children are rational and reasonable, but Rizk says there’s always room for disagreement, especially when assets are involved and there is a death in the family.

“A will should take that into consideration and provide as much clarity as possible in order to minimize the chance of somebody coming out of the woodwork and saying, ‘I don’t agree with the setup, and I’m going to challenge it.’”

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