personal finance

Can I use a mirror will to protect my children’s inheritance?


My partner and I have both been married before and had children with our previous partners. As with many other couples, we have made mirror wills, which state that on the death of one of us, everything falls to the other, and on the second death, everything is divided equally between our two sets of children. That means I have protected my inheritance for the long-term benefit of my own children, doesn’t it?

Portrait shot of Alison
Alison Parry, head of will and trust disputes at JMW Solicitors

Alison Parry, head of will and trust disputes at JMW Solicitors, says a mirror will is where two parties (often a couple, whether married or not) leave their estates in a way that mirrors each other. This is often seen as creating fairness between both individuals, as well as for their respective families.

Often the terms are that the whole estate of the person to die first — who I will call Mr X — is passed to the survivor — say, the Survivor — before being passed, often equally, to all of their combined children. 

This flexibility is seen to be ideal because it allows the Survivor to have the benefit of the joint pool of assets in their lifetime, meaning no prejudice to them, an ability to stay in their joint home and no reduction in quality of life. On the death of the Survivor, other parties (usually their respective children) take the joint pool of assets, so this asset transfer only happens when they have both passed away.

Where there is a blended family — for example, where both people bring a child or children from a previous relationship — this type of will is also seen to work really well. This is particularly flexible because all those due to inherit (in this example, the children of both individuals) do not necessarily have to have a good relationship with the Survivor.

This option means the Survivor is not reliant on anyone, such as their stepchildren, to determine how they can live and what they can spend when they are widowed. They have complete autonomy because they have received all of the assets as the first part of the mirror will takes effect.

What would happen if the Survivor wanted to change their will, for example to exclude their stepchildren? There is nothing to stop the Survivor doing so. The effect could quite easily be that the original assets of Mr X would not be preserved for their children but instead could be absorbed into the family of the Survivor. This would appear to be inherently unfair and not intended at the time the wills were made.

With more blended families than ever before, this situation is more likely to create a problem, particularly if one of the couple were to pass away at a younger age and the stepchildren do not remain close to their step-parent.

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There is another problem that can arise, even if relations remain good and there is no intention for the Survivor to deviate from what was intended. Even if the Survivor continued to be happy with a mirror will, which left the joint pool of assets shared between both their children and the children of Mr X, what if the Survivor had formed another relationship after Mr X died? 

Any new partner may have the right to claim in the estate of the Survivor under the Inheritance (Provision for Family and Dependants) Act 1975. This claim would not only be against the Survivor’s pool of assets but also the pool of assets of Mr X the Survivor had been holding. 

This potential outcome would not have been the couple’s intention when they made the mirror wills but it risks leaving an incredibly unfair result. We are contacted by many stepchildren who have been excluded from receiving any of their parent’s assets by virtue of a change in will of the Survivor or a later relationship creating rights for a third party.

Will making and the subject of dying is often something people put off talking about. No one wants to talk about the inevitability of death, and their loved ones do not want to hear about it either. It always helps for people to communicate their wishes, and talk about what preparations they have made (if they have) in terms of testamentary documents. Those concerned are likely to be more accepting of your wishes even where something has gone wrong in the process.

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How can I stop relatives ruining our family business?

I have a 25 per cent stake in our family business, with the remaining 75 per cent split equally between my brother and his two children. This arrangement was put in place after my father — the founder — passed away. My brother and his children run the business day to day, but recently things have deteriorated.

They seem to have been paying the shareholders excessive dividends, despite revenue remaining stagnant and profits falling due to rising supply costs. They also appear to have placed orders with a family friend’s business, paying them far more than the actual value of the goods. They seem to treat the company as a cash cow rather than a viable family business. What rights do I have to deal with this?

Portrait shot of Sharon
Sharon Fryer, a partner at Collyer Bristow

Sharon Fryer, a partner at Collyer Bristow, says this unfortunately isn’t an unusual problem when a business is passed down through a family. The next generations may have different views on how the business should be run, how much time and effort they want to put into it, what they expect to take out from it and over what timescale. 

Holding 25 per cent of the shares, and not being a director, means you have only limited powers to influence the direction of the company if the other shareholders or directors disagree with you. 

In terms of your specific concerns, a company can only pay dividends if it has profits, but your father may have left significant profits in the company, which are now being paid out. If so, while the dividends may seem disproportionate to current trading, they could still be permitted. 

In reference to your concerns about overpayments, directors are responsible for the day-to-day management of the company. However, they have legal duties in that role, including a general duty to act in the best interests of the shareholders as a whole, and a specific duty to avoid conflicts of interest. If they fail in those duties, they can be personally liable for any loss their breach has caused.  

So, if they are buying products or services at inflated prices, they could have to compensate the company for the overpayment. Or, if they have a conflict of interest (perhaps they are also involved in the friend’s business), it might be possible to have that contract set aside, and the overpayments refunded. But, where the company is solvent and the directors are also majority shareholders, bringing a claim could be complex and expensive. 

If the business is being carried on in a way which particularly disadvantages you, as compared to the other shareholders — such as the dividends only being paid to the others — you may have a claim of “unfair prejudice”. If you succeed in that claim, the court often orders the other shareholders to buy your shares. If that is an outcome you could accept, you may be able to achieve it more quickly and cheaply, and less acrimoniously, by negotiation with the other shareholders.

As you hold more than 5 per cent of the shares, you can require the directors to call a general meeting, and put specific items on the agenda, rather than waiting for the next AGM. However, the directors don’t have to engage fully, or provide information beyond your strict legal entitlement, so that may not be a productive step.

If the relationship with your family members is still reasonably cordial, I recommend trying to open the conversation in a less formal way, and only look to more confrontational legal processes if that is unsuccessful. 

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com.



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