Mutual Wills Create Constructive Trusts

Constructive Trusts

Mutual Wills Create Constructive Trusts

Mutual wills  as opposed to mirror wills, are not very common, but when they exist and  breached, that breach creates a trust that can be used to trace the assets into the hands of third parties.

Mutual wills are not a good idea for estate planning purposes and should be avoided except in unique circumstances.

In order for the breach of trust to occur, there must firstly be a contract between the parties not to change their wills and to provide for the other as per the terms of the mutual wills.

The mutual wills  are usually and should be accompanied by a written contract where  the parties essentially contract with the other not to ever change the terms of the mutual wills that they are signing.

The overwhelming number of parties who do will providing for each other do NOT do mutual wills but instead do mirror wills.

 

What may occur after the death of the first party to the contract,  the survivor as time goes on may  change his or her will to benefit other parties that the estate of the first to die.

 

If the mutual will is properly executed and the breach of trust is proven to have occurred, the  courts may award a constructive trust over the assets that should have formed part of the estate, and order that they are held in trust for the beneficiaries of the estate of first to diet

The authorities have consistently supported the proposition that a person cannot avoid a mutual will agreement by making dispositions of a testamentary nature.

Most authorities go further and support the proposition that a person cannot make any disposition intended to defeat the agreement, whether testamentary or not. 

 

Barns v Barns [2003] HCA 9, at paras. 163-4;  Flocas v Carlson [2015] VSC 221, at para. 192; Healey v Brown, [2002] EWHC 1405 (Ch), at paras. 13-14; Russo & Ors v Russo & Anor [2009] VSC 491, at para. 32; Youdan, T. G. “The Mutual Wills Doctrine” (1979) 29 U.T.L.J. 390, at 410-414; Oosterhoff, supra, at 140-142, 152-3; Croucher, supra, at 405

 

In the Australian case of Bigg v Queensland Trustees Ltd, [1990] 2 Qd R 11 as well as a number of Canadian cases that were decided before it,  state that where a person has acted to his or her detriment in reliance on an agreement to make irrevocable mutual wills, the court will enforce the agreement against the first to die in the same way as the traditional doctrine enforces the agreement against the survivor.

In Bigg v Queensland, the plaintiff, Mr. Bigg, and his wife, Mrs. Bigg, executed irrevocable mutual wills, which left their estates to each other, and on the death of the survivor, all of the assets divided equally between their four children (each had two from a previous marriage).

Mrs. Bigg died first, after having secretly made several new wills, which essentially left Mr. Bigg with just a life estate. Not knowing that Mrs. Bigg had revoked the mutual will, and still believing that he would be the sole beneficiary of her estate, Mr. Bigg transferred some of his investments into Mrs. Bigg’s name (for tax reasons).

After Mrs. Bigg’s death, Mr. Bigg sued the estate, claiming that the executor held all of the estate assets in trust for Mr. Bigg, and damages for breach of contract in the alternative.

In his judgment, McPherson J. (Supreme Court of Brisbane) questioned the reasoning in Stone v. Hoskins, and ultimately held that equity could not allow Mrs. Bigg to secretly change her will, while permitting Mr. Bigg to continue acting to his prejudice on the assumption that their agreement was still in place. On that basis, the court declared that the defendant executor held Mrs. Bigg’s net estate in trust for Mr. Bigg.

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

More Posts - Website - Google Plus