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A Contractual Will Agreement help bring certainty to blended families and their estate planning

The question every blended family wants to be answered is often 'Does a child in a blended family lose their rights to an inheritance if their step-parent dies?

A Contractual Will Agreement might provide the answer to this difficult question.

Many blended Australian families wanting greater certainty in their estate planning choose to make a Mirror Will with their spouse - effectively leaving everything to each other.

Read in this article:

Mirror Wills

They explain their intentions by saying 'if I die first, everything I own goes to my spouse, if they die first everything they own goes to me'.

  • But what happens if one spouse suddenly passes away, the survivor becomes the owner of all the family wealth, and then remarries - and later makes a new Will?
  • What happens to the children of the initial relationship?

Unless special arrangements are put in place, the survivor is free to change their Will after their spouse dies and may choose not to leave the estate to the children.

A Contractual Will Agreement can prevent the surviving spouse from changing their original Will and cutting the children out of the new Will.

The burning question for every blended family

Every parent of children in a blended family needs to be able to answer this question:

'Is my children's inheritance protected if I die before my spouse?'

  • The traditional common law position is that a step-child of marriage ceases to be a step-child of the step-parent at the time the natural parent dies.

This issue also creates particular problems when nominating a beneficiary to your superannuation fund.

Case Study: Meet John who had three children from a prior marriage when he and his partner Joe married in Bail earlier in the year.

  • Joe had one child from a prior marriage and both had different financial backgrounds and assets.
  • Together they formed a blended family of two adults and four children.
  • Joe’s elder brother had passed away two years prior in a road accident and his spouse quickly remarried and revoked their original Will - effectively seeking to disinherit the children of the former marriage.

John and Joe came to us for help to protect their new blended family and get their family estate planning in place.

Good decisions

John and Joe made mirror Wills leaving everything to each other in the event of one of them passing away.

  • Both wanted to protect their own respective children’s future, in the event either of them passed away
  • Both wanted to make sure in the event of one of the adults passing away, the survivor would not revoke their own Will and therein disinherit the child of the deceased adult.

Extra good decisions

They each saw the importance of using an enforceable Contractual Will Agreement to protect the future inheritance of all their children.

Their Contractual Will Agreement was separate to their Will and documented the couple's joint decision that;

  • during the lifetime of the other, they each would not change or revoke the Will without the consent of that other; and
  • after the death of one of them, the other would not change or revoke their Will.

How restricted is the surviving partner who signs a Contractual Will Agreement?

A surviving spouse usually inherits property, life insurance pay-outs, superannuation fund payouts, assets and possibly a business interest.

  • 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 Contractual Will Agreement.

When does it come into effect?

A Will only comes into effect at the moment of your death. In contrast, a Contractual Will Agreement comes into effect the moment you sign it - while you are still alive.

When is a Contractual Will Agreement binding?

A Contractual Will Agreement is binding when:

  • one of the parties can no longer change the Will, (due to loss of mental capacity), or
  • one of the parties dies

Do the courts recognise these agreements?

The courts honour these Agreements:

Per Dixon J in the High Court of Australia;

“a contract between persons to make corresponding Wills [our emphasis] 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

author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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