Build your Contractual Will Agreement
What is a Contractual Will Agreement?
Mike leaves everything in his Will to his second wife, Carol. She also has children. When Mike dies, Carol gets everything. What if she cuts out Mike’s children from her Will? Mike loves his second wife. However, the fear of the unknown keeps him up at night. Fortunately, there is a way to put Mike’s mind at rest. Mike and Carol need a Contactual Will Agreement.
Gloria & Jay have children from previous marriages. They leave everything to each other. When the last dies everything goes to all the children equally. A Contractual Will Agreement contractually protects this.
They build Wills. Whoever dies last leaves half to Mike’s children and half to Carol’s children. They then take the extra precaution of signing a Contractual Will Agreement. The Contractual Will Agreement stops them from cutting out the other’s children. The Contractual Will Agreement stops both of them changing their Will.
Mike now dies.
Carol lives another 30 years. Mike’s fear that Carol would cut out his children is justified. After Mike died Carol redid her Will. Carol leaves everything to her own children. She leaves nothing to Mike’s children.
Mike’s children enforce the Contractual Will Agreement. The Court gives half of dead Carol’s assets to Mike’s children. Mike’s children also get back all their legal costs.
How does a Contractual Will Agreement work?
This Agreement is a document between two people. This is often a husband and wife who each have children from prior relationships. They make Wills and want to ensure that their partner who survives them keeps their part of the bargain.
The courts honour these Agreements:
“a contract between persons to make corresponding wills gives rise to equitable obligations when one acts on the faith of such an agreement and dies leaving his will unrevoked so that the other takes property under its dispositions. It operates to impose upon the survivor an obligation regarded as specifically enforceable. It is true that he cannot be compelled to make and leave unrevoked a testamentary document and if he dies leaving a last will containing provisions inconsistent with his agreement it is nevertheless valid as a testamentary act. But the doctrines of equity attach the obligation to the property. The effect is, I think, that the survivor becomes a constructive trustee and the terms of the trust are those of the will which he undertook would be his last will.” Birmingham v Renfrew [1937] HCA 52
How restricted is the surviving partner?
The surviving partner is allowed to consume the assets but can’t give them away or waste them. They can’t act with the intention of defeating the agreement.
Is the Contractual Will Agreement a ‘Will’ in itself? Or is it just an agreement not to change your Will
Your Contractual Will Agreement is not a Will. It is an agreement that you sign to say that you won’t change your Will. You merely staple your and your spouses unsigned copies of your Wills to the back of a Contractual Will Agreement.
Another difference is that a Will only comes into effect at the moment of your death. In contrast, your Contractual Will Agreement comes into effect the moment that you sign it – while you are still alive.
When is a Contractual Will Agreement binding?
A Contractual Will Agreement is binding when:
a) one of the parties can no longer change the Will, or
b) one of the parties die
Contractual Will Agreement v’s challenging a Will
A couple marries who both have been married before. Each of them has two adult children. They contractually agree that in their wills, they leave their estate to each other and the survivor leaves his or her estate to the four children equally.
One dies and the deceased’s children challenge the Will under the Family Provisions Legislation. Which prevails: the Contractual Will Agreement or the court challenge?
In Dillon v Public Trustee of New Zealand in 1941, the Court decided that property the subject of such a contract was available to meet an order under such legislation. But in Schaefer v Schuhmann in 1972, the Court decided that it was not. In Barns v Barns in 2003, the High Court of Australia decided to reject Schaefer and to follow Dillon. So challenging a Will can, currently, override the Contractual Will Agreement. However, these Wills did not have a Considered Person Clause in the Wills. If they had the outcome may have been different.
Telephone us for help on building online the Contractual Will Agreement.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
Australia wide law firm
Mobile: 0477 796 959
Reception: 1800 141 612
Email: brett@legalconsolidated.com
Skype: brettkennethdavies
When we redid our wills, we went a long way down the contractual will agreement path before abandoning it. The lawyers we were working with were not convinced that it was enforceable when they sought a second opinion as part of their internal review
Is there some disagreement in the legal community regarding this, that you have heard about?
Wills by their very nature are delicate creatures. This is because the Supreme Court can rewrite them. However, if you give your assets away the day before you die (see Death Bed Declaration), then the Supreme Court can NOT change the distribution. This is because your assets never made it into your Will. However, if you die a day later with all your assets then they go into the Will and the Court can rewrite your Will as it sees fit. It can then give your assets to other people.
Before I address your question, compare ‘Mutual Wills’ and a ‘Contractual Will Agreement’. ‘Mutual Wills’ are just two Wills: all to dad if mum dies first. And, all to mum if dad dies first. After both mum and dad die, only then, everything to the children. (See sample of Mutual Wills.) If dad dies and leaves everything to mum, then, sadly, I believe that mum is legally able to change her Will cutting out the children. As Oldham J explained in Re Oldham:
Of course it is a strong thing that these two parties came together, agreed to make their Wills in identical terms and in fact so made them. But that does not go nearly enough. If the spouses intended to do what the plaintiff suggests, it is difficult to see why the Mutual Wills gave the survivor an absolute interest in the whole of the property of the one who died first . . . Could these parties have acted as they did with any other object or intent than the plaintiff asserts? It is impossible to deny that they could.
Other lawyers believe that the second person to die can’t change their Will.
To put the matter beyond doubt, mum and dad should also enter into a legally binding ‘inter vivos’ agreement. This is called a Contractual Will Agreement. The agreement comes into effect while both are alive therefore the Supreme Court is bound by the Agreement. The Supreme Court can’t change the Agreement. The unsigned Wills are attached to the Agreement. Provided mum and dad are of sound mind and not being bullied into signing – the agreement, like any other agreement, can’t be challenged. See a sample of Contractual Will Agreement which also contains our law firm’s letter of advice. Our letter sets out the Court authority on why they are binding on the courts, as well as mum and dad.
While Wills are also made while you are living – to state the obvious – they don’t come into effect until AFTER death. In contrast, a Contractual Will Agreement comes into effect when you are both still living – that is BEFORE death.
Remarriage does not diminish the enforceability of a Contractual Will Agreement: Re Marsland, [1939] Ch 820, 826 (Eng. C.A. 1939); Re Kerr, [1948] 3 DLR 668, 679; Re Green, [1951] 1 Ch 148, 155; Clausen v. Denson, [1958] NZLR 572, 576-577; In Re Dale, [1994] Ch 31, 41; Re Goodchild, [1996] 1 WLR 694, 700 and 701. Therefore, trusts and obligations arising from the Contractual Will Agreement are not affected by the second Will Maker’s remarriage. The beneficiaries under the Contractual Will Agreement continue to be entitled to the benefit under such trusts.