'Handcuffed' by mutual wills

Can you guard against your life savings ending up in the hands of someone else’s children?

I posed that question last week, after telling a story about how plausible future events could lead to that negative outcome. The problem arises with the very common scenario of blended families.

Two people fall in love and make a life together. Each has children from previous relationships. They work hard together, to save for their retirement. In their mid-50s, they make wills that mirror each other. Each will says when one dies, everything goes to the other so they can live the rest of their life in comfort. When the second dies, everything is split between the children.

What they fail to consider, however, is what might happen in the time that will pass between their two deaths. If one of them dies at age 60, the other might live another 40 years. That is a lot of time for a potential deterioration in the relationship between the surviving spouse and their stepchildren. And lots of time for the surviving spouse to find love again.

The surviving spouse could review their will and no longer want their stepchildren to get an equal share of their estate. They might want to cut them out altogether.

They become financially entwined with a new life partner and it makes sense for each to make wills leaving everything to each other. As a result, the stepchildren might end up with none of the life savings amassed by their parent, the deceased spouse.

There’s no perfect solution, but there are options. One is to make an agreement with your spouse where each of you agree you will not revoke your will after the other dies. The terminology for this is making “mutual” wills.

To have legal effect, that agreement must be clear. Terms of the agreement can be made within your wills themselves, contained within a separate written contract or both.

That might sound like a perfect solution but perfect solutions are illusive when trying to plan for an uncertain future. All sorts of future events could occur where having the surviving spouse handcuffed to a mutual will made years before would result in gross unfairness.

Unfortunately, the only person who could have removed those handcuffs, the other deceased spouse, is not there to do so.

Put yourself in the shoes of the surviving spouse. You have no children of your own and the mutual will you are handcuffed to leaves everything to your two stepchildren. It seemed right at the time. Your assets came about with the help of your deceased spouse. But you were in your mid-30s when your much-older spouse passes away. You were lucky enough to find another life partner and have three children together.

Fast forward to when you’re in your 50s. Your stepchildren, who were put through extensive university programs, are independently wealthy. You have no intention of disinheriting your stepchildren, but you want to ensure your biological children receive your support on your death as well. If your late spouse was still alive, they would want that too. But you can’t change your will.

Another example is your ability to amass significant additional assets after your spouse passes away. Your estate, at the time you handcuffed yourself to a mutual will, was relatively small. Now it’s much more significant.

You would like to change your will to leave parts of your estate to others, while still providing for your stepchildren, but the handcuffs get in the way.

The younger you are when making wills, the more likely there will be a scenario where mutual wills end up being inappropriate. As you and your spouse age, that likelihood goes down because the potential amount of time between each of your deaths becomes less.

Ironically, the more you and your spouse grow old together, the value of mutual wills goes down as well.

Next week, I will describe other ways you can ensure your children benefit from your hard-earned assets.I’ll warn you now, though, none of them are perfect.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.