You might think that a person’s Will is final however it is possible to make alterations to the distribution of their estate following their death.
Why might I want a Deed of Variation?
There are a number of reasons why it might be desirable to alter the distribution of an estate and these include;
- Diverting Inheritance to Children or Grandchildren - a beneficiary might prefer to pass part of all of their inheritance on to the next generation, for example to assist with a house purchase, clear debts or invest in their business.
- Diverting inheritance to a sibling or another individual who has been excluded – you may have a sibling who has been excluded or is set to receive less from the estate and you may wish them to benefit from the estate or to equalise their share of the estate.
- Give affect to the deceased’s wishes – the deceased may have wanted to change their Will but didn’t have time or simply didn’t get around to it but they made their wishes known. The beneficiaries may wish to make sure those wishes take effect.
- Alter the Intestacy Rules - If the deceased did not leave a valid Will, their estate would typically be distributed in accordance with the intestacy rules and pass to family members. This will not include step-children or unmarried partners. As a result it may be that the beneficiaries who are set to inherit under the intestacy rules wish to vary the division of the estate to include step-children or an unmarried partner who has been excluded.
- Give affect to an agreement reached following a Will dispute - In many of the instances noted above, it’s possible that the beneficiaries who are set to inherit do not wish to alter their inheritance initially and a dispute arises over the distribution of the estate. They may then reach an agreement during the dispute and require a Deed of Variation to give effect to
- Reduce inheritance tax – the estate might be liable to inheritance tax on the basis of the Will as it is drafted but it may be possible to reduce or even clear the inheritance tax liability by altering the division of the estate. This might to be for example, to make the estate eligible for the residence nil rate band or make use of the reduced inheritance tax rate applicable when 10% of an estate is left to charity.
What are the benefits of a Deed of Variation?
Without a Deed of Variation, any change in the distribution of the estate will be treated as a lifetime gift by the original recipient and may therefore impact the original recipient's Inheritance Tax and Capital Gains Tax position.
A Deed of Variation is read back to the deceased’s date of death for both Inheritance Tax and Capital Gains Tax and therefore means that the new division of the estate detailed in the Deed of Variation is treated as having been the original position. This in turn means that rather than being a gift from original beneficiary, the gift instead originates from the estate, meaning the original beneficiary’s Inheritance Tax and Capital Gains Tax position are unaffected by the gift.
What are the requirements of a Deed of Variation?
- The Deed of Variation must be completed with 2 years of the date of death.
- Any beneficiary whose entitlement will be reduced or altered must agree with the amendments and must be a party to the document.
- If the inheritance tax position of the estate will be affected, the executors must be party to the Deed.
- Any beneficiary under the age of 18 will not be able to vary their entitlement by way of a Deed of Variation (unless they reach the age of 18 and wish to proceed with a variation within the 2 year period).
- Any variation must be in writing and set out clearly the alterations to the Will.
If you would like to discuss making a Deed of Variation please contact Jasmin Barron on 01394 277 941 or at jasmin@fairstep.co.uk, alternatively fill out our contact form, and we would be happy to discuss your requirements in further detail.