Make sure your wishes are followed by choosing the right type of will.
Following on from a previous article about trusts, I thought it would be good to consider another part of generational planning- the use of will.
I will break this down into two articles, the first (this one) discusses the difference between mutual and mirror wills and why this difference is important to understand– this is not country specific. The second article will look at how this could apply in the Czech Republic.
What are Mirror Wills?
A pair of wills (usually made by spouses or partners) that reflect each other — typically leaving everything to the surviving partner, and then to the same chosen beneficiaries (e.g., children).
The key issue here is that mirror wills are not legally binding on the survivor and so if one partner dies, the other is then free to change their will to whatever they want- which may not have been the original plan agreed between both parties.
If we consider an example
John and Mary each write a will leaving everything to each other. After the second death, their estate goes equally to their children.
In a mirror will, if John dies first, Mary can later change her will to leave assets to someone else if she chooses- which could include a future spouse and the children of that spouse and not John’s children.
What are Mutual Wills?
While mutual wills are, again, drawn up to reflect each other these are special agreements to make wills on agreed terms, with a legally binding promise not to change them after the first death.
Effectively, this is a binding contract between the two parties. When the first person dies, the survivor is legally prevented from altering the will.
Looking at John and Mary again
John and Mary agree that after both die, their estate must go equally to their children. John dies first. Mary inherits, but she is not allowed to change her will later to exclude the children or favour someone else.
Summary
The difference:
Mirror wills – look alike, but are revocable and flexible.
Mutual wills – contractually binding, survivor cannot change terms after the first death.
If you have a large estate, it may well be worth discussing LINK Czech Trusts and Inheritance Tax with a lawyer and a financial adviser.
