(Financial Review) - Two sisters have defeated an attempt to overturn a 30-year-old verbal agreement bequeathing them an inheritance including an $11.5 million Toorak home, cash and shares.
The Victorian Supreme Court case, decided earlier this month, involved Kurt and Marilyn Miglic, who in 1993 made oral agreements not to change their wills, which gifted their estates to one another.
The agreement also provided that the survivor’s estate was to be left to Kurt’s biological daughters, Lisa and Andrea, who were Marilyn’s stepdaughters. Marilyn had no children of her own.
After Kurt’s death in 2007, Marilyn made a series of new wills, each of which left more of her estate to her nieces and nephews, who were the defendants in the case.
But the sisters successfully argued the existence of a mutual wills agreement that bequeathed them 99 per cent of the estate, worth about $13.5 million.
The judgment is notable in that mutual wills agreement cases are rare (and proving a 30-year-old oral deal when both parties are dead was always going to be difficult), but such agreements are becoming more popular, lawyers say.
They say that at a time when blended families are increasingly common, the agreements are being used by spouses or partners to legally bind each other to their promises.
“Many people are worried that when they die an outsider will come in and take all their money,” says Pitcher Partners client director Anna Hacker.
“There is a fear that their biological family will have no control over the assets.”
According to the Australian Institute of Family Studies, only 73 per cent of marriages involve two people who have not been married to somebody else previously, down from 90 per cent in the 1960s.
Lawyers claim this has contributed to a spike in the number of disputes about wills and estates involving blended families, where at least one of the children is not biologically related to their spouse.
Hacker says mutual wills agreements were until recently rarely used but are now discussed by around one in three of her clients.
Christian Teese, a special counsel for Rigby Cooke Lawyers who represented Kurt’s daughters, says: “If there had been a written mutual will agreement there would likely have been no need for the case to go to court because the parents’ intention would have been beyond dispute.”
The fact the agreement was an oral one meant 16 days of painstaking courtroom examination of the children and forensic analysis of what the parents told them about the will at family meetings and other occasions, Teese says.
The courtroom battle followed years of discussions between parties and months of legal preparation before the hearing.
Justice James Gorton ruled that on the balance of probabilities the married couple had reached an agreement that “that neither would make a new will without the other’s consent”.
He found there had been an agreement that was intended to be legally binding, and it was a term of the agreement that neither testator (the person who makes a will) would change their will without the other’s consent.
Barrister Giles Stapleton, of Selborne Chambers and Family Law Chambers in Sydney, describes the decision as “profound”.
“If you are disengaging from a first marriage and are going into another marriage it is easy to thoroughly underestimate the emotional connections any children have to their families and assets,” he says.
Hacker warns that mutual wills agreements can seriously restrict a spouse’s options because once the partner dies it cannot be revoked, which means they are stuck with it for the rest of their lives.
It is likely to be more onerous for women, who generally live longer than men.
She adds that parties to a mutual wills agreement cannot revoke the rights of any beneficiaries, which means the wills cannot accommodate changing relationships. But it does not rule out a new partner challenge an estate at a later date.
“They are to assist in financing a lifestyle. Depending on the agreement, the surviving partner may not be free to do whatever they want with the assets, such as give them to charity, or friends,” she says.
“In the case of blended families, the wills are designed to make provision for the new spouse, but intend the property to ultimately flow to the children of the first marriage.”
Teese adds: “One of the key drivers is that each party gets certainty but binds themselves never to change their will without permission. Once the first partner passes away, the die is cast, come hell or high water.”
An alternative structure is for the testator to pass on the estate to children from the previous marriage without conferring any interest on the new spouse.
But this may be subject to challenge because it does not make adequate provision for the spouse.
A property held in a sole name is an estate asset, which means it will pass in accordance with the will.
But where the property is held as a joint tenancy with someone else, it will automatically transfer into the name of the surviving owner upon the death of the other person.
Tips from lawyers for how to avoid costly disputes:
- Have a written agreement about how the will is intended to operate based on the family and financial situation. List all assets and beneficiaries. Seek legal advice and lodge a copy of the will with the solicitor.
- Specify any restrictions and whether any assets are to be preserved or not. This is to ensure the surviving partner does not squander the estate by selling property, shares and spending all the cash during their lifetimes. “Assuming the intent is to prevent this, which it may not be,” Teese says.
- Brief children about any will agreement as they will have to enforce the agreement if it is not honoured by a surviving spouse.
- Appoint a power of attorney to help arrange and facilitate financial management. Specify their scope of powers. Consider having two to provide checks and balances.
- Include an advance care directive that specifies limits if you are too sick to communicate decisions about care and treatment.
- Review your will if you marry, separate, divorce or re-partner to ensure your wishes are properly recorded, according to the Separation Guide, which provides information for people seeking guidance on marriage and divorce issues.
- Identify someone to handle potentially complex investment and financial issues.
- Do not sign any documents without seeking professional advice.
- Consider variations on the mutual wills agreement that restricts its implementation to, say, 50 per cent of the assets. “This is particularly if the surviving spouse is reliant on any inheritance to meet expenses,” Teese says.
- Consider strategies to deal with disappointed beneficiaries. Court battles involving high-priced senior counsel and their instructing solicitors in the nation’s superior jurisdictions can cumulatively cost nearly $70,000 a day and take years to get to trial, pushing the final bill for a decision into hundreds of thousands of dollars. Legal expenses can consume the wealth of an estate and leave a bitter legacy.
By Duncan Hughes
February 27, 2024
