A recent case study in the Telegraph highlights once again the danger of making a Mirror Will.
A Mirror Will is a type of Will made by couples which, as the name suggests, contains identical terms. On the first death, they leave everything to surviving spouse if there is one, or to the children or other loved ones if there is not. Consequently, after the first death the surviving spouse inherits everything, with the idea that the children or other chosen family members get the estate on the second death.
What you may fail to realise is that if you make a Mirror Will, your spouse is free to change their Will as they please, even if you don’t. If you die first, there is no guarantee that your spouse will keep their Will in the same terms. Further, if they remarry, their Will is automatically revoked, making their new partner first in line to inherit. Even if they make a new Will, this could leave everything to their new spouse first, who then has every right to disinherit your children.
The Financial Times recently reported that there was a 36% surge in inheritance disputes brought to the High Court in 2016. However, given that most inheritance disputes are resolved out of court, these figures are likely to grossly under represent the scale of the problem. Despite the problems that Mirror Wills cause, they are still widely recommended by lawyers across the UK.
Stuart Herd’s case
The Telegraph reported on the case of Stuart Herd inherited nothing from his late father William’s estate as a result of a Mirror Will.
Stuart’s mother passed away and his father remarried in his late 60s.
His father then signed a Mirror Will together with his new wife Dorothy – Stuart’s stepmother. The Will provided for the surviving spouse first, and then the children that both William and Dorothy had from their past marriages.
The terms of the Will stated that on the first death, the estate was to go to the surviving partner. On the second death, the estate was to be shared equally between Stuart and Dorothy’s son.
Stuart’s father died and the estate passed to Dorothy – but it was not until more than 10 years later on Dorothy’s death that Stuart discovered she had changed her Will. Rather than splitting her estate equally between Stuart and her own son as Stuart’s father wanted, Dorothy had left everything to her son.
Stuart explained that the estate not only included his father’s money, but also his mother’s and grandparents’ funds as well. Stuart should have received £150,000 if his father’s wishes had been complied with but instead, the entire estate passed sideways out of the family as a result of a completely legal process.
Dorothy changed her Will four years before her death and also left a Letter of Wishes which explained that she had disinherited Stuart because he had not bothered contacting her for 10 years. Stuart says this is untrue and he has evidence they were in touch just a few days before Dorothy’s new Will was drawn up. However, this makes little difference since Dorothy is completely within her rights to disinherit Stuart, her husband’s son.
Stuart told the Telegraph:
“I feel the law hasn’t moved on – there is an increase in blended relationships. Relationships are far more complex these days. My father worked really hard to build that up and losing it feels like you’ve been mugged. To me he was very clear in what he wanted. There should be a requirement and an obligation to notify anyone being disinherited so they can challenge it then.”
The alternative to Mirror Wills
Using a Life Interest Trust, you can ensure your spouse is cared for after your death whilst protecting your share of the assets for your children/grandchildren.
Perhaps the saddest part of this case study is that the issue is very easily avoided with some simple estate planning. This involves the use of a life interest trust in your Will which not only protects your children’s and/or grandchildren’s inheritance but also protects your share of the family wealth from care fees.
With this type of arrangement, if you die first your spouse is given a life interest in your share of the family wealth. This means that they have use of your share but it is protected. On their death, your share then passes to who you choose.
There are a good number of benefits to using a Life Interest Trust. It gives you peace of mind that if you die first, your spouse will be cared for after your death, but they cannot do anything to disinherit your children or grandchildren, whether intentionally or inadvertently. They don’t actually own your share of the family estate as they only have a life interest, so they can’t spend it or include it in their Will. Further, if your spouse needs care after your death, your share of the assets cannot be used up on care fees as once again, they do not own your share.
Life Interest Trusts: How they work
If your spouse needs care after your death and like most people, they are not entitled to NHS Continuing Healthcare Funding, the Local Authority will perform a means test to see if they can afford to pay the care fees.
- If they have assets over £23,250 (including the family home) they will have to pay for their care fees in full.
- For those with assets between £14,250 and £23,250, the Local Authority will pay in part for the care costs.
- When assets deplete to £14,250, the Local Authority pays in full (although in reality, most people will still be asked to make a contribution as they will often want to attend a different care home than the Local Authority budget will allow for).
In the UK you can expect to pay on average of around £31,200 a year in residential care costs, rising to over £43,700 a year if nursing care is necessary (Source: Laing & Buisson Care of Older People UK Market Report 2016/17 cited on Payingforcare.org). Consequently, after care fees are taken, there can be little or nothing left to leave to children or grandchildren.
Using a Life Interest Trust, you ensure that after your death, your spouse only has a life interest in your share of the estate. This means that they have full use of the share but they do not own it outright. Consequently the Local Authority cannot take it into account when performing a means test and even if your spouse’s share depletes, there is still 50% of the estate left to pass on to children/grandchildren. Further, your share cannot pass sideways out of the family as a result of your spouse changing their Will, remarrying or getting into financial debt.
Note that a Life Interest Trust is created in your Will. It is NOT the same or even similar to the worthless so-called ‘Asset Protection Trusts’ that are sold by unscrupulous companies and involve giving up ownership of your home. These are both dangerous and useless in effect – read our article ‘Asset Protection Trusts – why you should steer clear‘ for more info.
Once your spouse dies, your Will dictates what happens to your share. One option is for it to pass into a trust for your children or grandchildren which then provides further protection for them against predatory third parties (see for example our article ‘What happens to inheritance on divorce?‘).
For this type of Will to be effective, it is important that you own any properties as ‘Tenants in Common’ rather than ‘Joint Tenants’. Owning a property as ‘Tenants in Common’ means that each owner can dealt with their share as they choose. If you do not already own your family home or other properties this way, you can change your ownership to Tenants in Common by ‘severing the tenancy’ which involves the completion of a form (if the property is registered with the Land Registry) or a Notice (if the property is not registered).
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