What are mirror wills?
Mirror wills are a common will structure often used by couples, married or unmarried, who have similar wishes on how their estates should be distributed on their deaths. Mirror wills are two separate legal documents that contain nearly identical provisions. Both parties agree to similar terms, such as naming each other as the main beneficiary, and outline how their estates should be distributed on their deaths.
An example of a mirror will in practice, in its simplest form are wills that leave the entire residuary estate to each other on first death and then onto their children on second death.
Although mirror wills can provide clarity and simplicity for some family dynamics, there are certain situations where mirror wills may not be the most suitable will structure.
What are the advantages and disadvantages of mirror wills?
Mirror wills can be an effective will structure for Inheritance Tax planning, particularly if both parties are married. By a married couple leaving their estates to each other on first death or giving the survivor a life interest (see below for further detail on this) and then to their children on second death, they can utilise Inheritance Tax allowances. In this scenario, on first death the estate would pass to the spouse free of Inheritance Tax (known as ‘spouse exemption’). If there is a property involved in the estate, by giving their respective interests in the property to their children (or ‘direct decedents’) on second death, the estate can utilise the additional Residence Nil Rate Band (RNRB) allowances, meaning the total allowances applicable could be up to £1million.
Although there would be no Inheritance Tax to pay on first death here, for larger estates there could still be Inheritance Tax to pay, as estates in excess of £2 million do not qualify for the RNRB. It is therefore always important to seek professional advice on how best to draft your will in the most tax efficient way.
Mirror wills can be beneficial for tax planning. However, this does not necessarily mean that a grant of probate will not be needed to deal with the assets of the estate. If you are dealing with an estate involving a mirror will and require advice on whether probate is needed, you can reach out to our Private Wealth team who will be happy to help.
Mirror wills can also be a cost-effective estate plan as they are often more affordable than creating two separate wills. As both documents ‘mirror’ each other’s terms, this can often streamline the process when providing instructions to the solicitor drafting the wills. Mirror wills are also very flexible as they can be changed at any time.
However, the flexibility of mirror wills could also be a disadvantage, as either party is free to amend their will without giving notice to the other. This is because mirror wills are not contractually binding agreements in the same way that mutual wills are (see below for further information) and this can potentially cause problems in family dynamics such as blended families.
Mirror wills and stepchildren
Mirror wills can be particularly important for couples with stepchildren, as these children have no automatic inheritance rights under the Intestacy Rules. Through creating mirror wills that include stepchildren as beneficiaries, couples can ensure that all children are protected, not just biological children.
However, couples should also be aware that mirror wills do not necessarily offer protection that such children (or any beneficiaries who are included on second death) will ultimately inherit, as the survivor of the couple can change their will if they wish, if they have sufficient testamentary capacity to do so.
Case study
Lisa and John are married and both have been married before and have children from their previous relationships. Lisa has one daughter, Marie, and John has one son, Jake. Lisa and John decide to make mirror wills leaving their entire residuary estates to each other on first death and then split equally between their two children, Marie and Jack, in equal shares.
John dies first and, unfortunately, the relationship between Lisa and her stepson Jake breaks down over time. Lisa decides to amend her will to leave her entire residuary estate to her biological daughter, Marie. Upon Lisa’s death, Jake would lose out entirely. Jake may be able to make a claim against the estate under the Inheritance (Provision for Family and Dependants) Act 1975 but only if he can demonstrate some degree of financial dependency.
Life interest trusts
A claim under the Inheritance (Provision for Family and Dependants) Act1975 can be a lengthy and expensive process. If couples are concerned of such risk, it is possible to incorporate a trust structure such as a life interest trust as a way of providing further protection and control over what happens on second death.
A life interest trust provides the ‘life tenant’ who is defined in the will with the right to the income generated from the trust assets, together with a right to live in any property placed in the trust for life. The life tenant is usually the surviving spouse. In doing so, the assets passing into the trust are ‘ring fenced’ for the next generation and the person who is drafting the will therefore retains control on which beneficiaries ultimately inherit on second death.
What is a mutual will?
A mutual will is also an alternative to a mirror will. Mutual wills are similar to mirror wills in that they are drafted with near identical terms. However, mutual wills contain a legally binding obligation between the individuals that neither party can change or revoke the will without the other’s consent, or after the first death. The terms of the will therefore remain binding on the survivor, whether or not they subsequently go on to make a new will. The law surrounding mutual wills is complex and specialist advice should be sought. In the majority of cases, mutual wills are not appropriate due to the lack of flexibility.
Our specialist Private Wealth team can advise on mirror wills and other appropriate structures for estate planning based on your individual circumstances.
