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.
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  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.
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.
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Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
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