Where There Is A Will ...
An independent survey conducted in 2017 reported around 1,500 New Zealanders every year die intestate; that is, die without a will. While it is difficult to think about your own mortality, having a will allows you to have a say what happens to your assets on your death, which is an important part of ensuring the people you care about are taken care of.
It is a common misconception that your property will automatically go to your next of kin if you die and do not have a will. If there is no will, there may be unintended consequences: assets are to be distributed according to a strict formula, which may include partners, children, and in-laws.
There are many ways to reflect the wishes of a will maker. We set out below some of the differences between Mirror Wills, Mutual Wills, and Life Interest Wills.
A Mirror Will is created where a couple each make a will that disposes of their property in a similar manner. For example, a married couple leaves everything to each other in the first instance and then to their children or grandchildren on the death of the survivor of them.
Mirror Wills can also work for couples who have had previous relationships and children from those relationships. The couple each make a will, which records that, on the death of the survivor of them, their whole combined estate is to be divided into two equal shares: one share for the children of the spouse that died first and one share for the children of the spouse that died second. In this way, the estate is shared equally between the two families.
Complications can arise, however, when a spouse changes their will.
For example, Susan dies, and her husband Robert discovers his wife changed her will prior to her death. Susan’s new will records that she wishes to leave a large sum of cash held in a bank account in her sole name to her sister. Robert is upset because he was relying on those funds for his retirement with the understanding the balance would go to their children on his death.
It is important to note that Mirror Wills do not create a legally binding agreement between couples, and as a general principle, a will can be revoked during the lifetime of the will maker
Mutual Wills can operate between married couples, unmarried partners, and even siblings. A couple make identical wills that disposes of their property on their deaths that includes a binding mutual promise in each will. This promise records the intention not to revoke their wills during their lifetimes and after the other’s death, nor change their will in a way that is less favourable to the beneficiaries.
While a will may be revoked during the lifetime of the will maker, where non-revocation has been promised in a Mutual Will, the executors and trustees of any new will may be required to hold assets in terms of the earlier will.
Mutual Wills are not commonly used. This is mostly because of the inflexibility that might produce an unfair result if there is significant change of circumstances.
Life Interest Wills
If property is owned by two people in shares, rather than jointly, they can leave their share of the property to whomever they choose in their wills. A couple will sometimes leave a life interest in their respective share of the property to their spouse.
The family home is usually the main asset which the survivor receives the use and occupation of for their lifetime. On the death of the survivor, that share of the property subject to the life interest goes to the final beneficiaries of the deceased’s will. The life interest gives the survivor the use of the asset, but not the ownership of the asset.
Another example is where a protective trust is created in the will for a particular child or vulnerable adult who may not be able to look after themselves. On the death of the child or vulnerable adult, the property reverts to the named beneficiaries in the will.
By creating a will as part of your estate planning, you have a say over the distribution of your assets. It is important to seek advice from a lawyer to ensure your specific wishes are recorded in your will.
Should you wish to discuss anything relating to this article, please do not hesitate to contact Gaynor McLean.