On the facts as you describe them, the surviving spouse can change her will unless the original wills amounted to mutual wills. The presence of IIP (or IPDI) trusts does not, of itself, prevent revocation or restrict the survivor’s testamentary freedom.
An interest in possession is a trust mechanism, not a contractual one. The husband’s will created an IIP over his share of the property in favour of the surviving spouse. On his death, that trust became fixed and irrevocable as to his share. The surviving spouse is entitled to occupy the property for life, and on her death the husband’s share must pass in accordance with the remainder provisions in his will, including to his child. That position cannot now be altered by the survivor.
However, the IIP does not impose any obligation on the survivor as to the disposition of her own estate. Her own share of the property and her residuary estate remain hers absolutely, and she is free to change her will in relation to those assets unless there is a binding mutual wills arrangement.
Mutual wills arise only where two individuals make wills pursuant to a clear agreement that neither will revoke or alter their will without the consent of the other, and with the intention that the agreement will bind the survivor after the first death. Where one party dies having complied with that agreement, equity enforces it by treating the survivor’s estate as held on a constructive trust when the survivor dies. The key point is that this requires clear evidence of a contractual agreement not to revoke; mirror or reciprocal wills, even carefully coordinated ones, are not enough.
The fact that the survivor has remained in the property and benefited from the IIP does not, in itself, create such an obligation. Benefit alone does not convert coordinated wills into mutual wills. Without clear and compelling evidence of an agreement that the wills were intended to be mutual and irrevocable after the first death, the presumption is that each testator retained testamentary freedom.
Accordingly, the surviving spouse cannot exclude the husband’s child from the husband’s share of the property, because that share is already held on IIP trusts that will take effect on her death. She can, however, change her will so as to exclude the husband’s child from inheriting her own share of the property and her own estate, unless it can be shown that the original wills were mutual in the strict legal sense.