Nov 29, 2019
Creating A Mutual Wills Agreement And Determining When It Is Breached
Co-written by Articling Student Thomas Witteveen
When spouses are estate planning, it is common for them to consider drafting "mirror wills". As the name suggests, mirror wills are wills that are reflections of one another. In the context of spouses with children, for example, it is common that each spouse drafts a will that leaves his or her estate to his or her surviving spouse, and then to his or her children.
To prevent one spouse from altering his or her mirror will, the spouses may also consider entering into a "mutual wills agreement". Mutual wills agreements are often used by spouses with children from prior marriages, as there is concern that one spouse may subsequently change his or her will to cut the other spouse's child/children out of the ultimate entitlement. Without a mutual wills agreement, either spouse may subsequently change his or her will, which would defeat the purpose of having drafted mirror wills in the first place. However, where spouses are party to a mutual wills agreement and one spouse subsequently tries to alter his or her will, the "doctrine of mutual wills" arises to impose a constructive trust over the estate assets, thereby preventing the variation from taking effect.
In 2019, the Ontario Superior Court released its decision in Nelson v Trottier, in which the court was asked to rule on whether the doctrine of mutual wills arose. Here, a husband and wife each had children from a past marriage. They executed mirror wills and a mutual wills agreement, whereby they agreed to not revoke or vary their wills or dispose of substantial proportions of property so as to defeat the agreement. Following the husband's death, the wife made a $200,000 donation in her late-husband's honour. The deceased's children, after finding out about this donation, brought an application requesting that the doctrine of mutual wills be invoked. The applicants alleged that their step-mother's donation defeated the purpose of the mutual wills agreement, which was to provide an ultimate benefit to each spouse's children.
The court—in rejecting the children's application—held that the donation did not defeat the mutual wills agreement, and that the doctrine of mutual wills did not arise as a result. The court came to this conclusion for two main reasons. First, the court noted that the $200,000 donation was not inconsistent with the mirror wills and that the widow's donation was actually "a fitting way to honour [her late-husband's] memory". Second, the court found that the donation did not defeat the purpose of the mutual wills agreement because the estate was worth over $5,000,000; in other words, the $200,000 donation was not a "substantial" amount given the size of the estate. With that said, the application was dismissed.
Unfortunately, the court never opined on what would constitute a "substantial" gift such that it would defeat the purpose of a mutual wills agreement. It is also unclear if the court's reasoning would change if the wife made the gift to her own children at the exclusion of the husband's. Instead, the test for what may offend the purpose of a mutual wills agreement appears to be subjective and, as such, will be decided on a case-by-case basis.
Given both the increasing number of blended families resulting from second and third marriages and the desire to achieve certainty in testamentary dispositions, the case of Nelson v Trottier serves as a reminder for the importance of careful estate planning.
more SUCCESSion: Tax & Estate Matters posts