If you're trying to work out the best way to structure a deed of variation we would recommend taking professional advice.
If you have inherited money or property under the Will of a loved one, you can redirect your entitlement to someone else by executing a formal "Deed of Variation". You can also vary any entitlement you may have received under an intestacy (where someone has died without a Will).
There are many reasons why you might want to enter into a deed of variation but here are some of the main ones:
- There is a more tax efficient way to distribute the deceased's estate and you want to make use of it.
- The Will or Intestacy does not make provision for people that you believe should have some benefit from the estate (e.g. grandchildren born after the date that a Will was written or a partner or cohabitant who has no automatic entitlement under an intestacy).
- If the beneficiaries of an estate collectively want to 'even things out' for all beneficiaries, perhaps if a child has been omitted or has been left a smaller share of the estate than others.
- You want to give away all or part of your inheritance to someone else tax efficiently.
What are the main advantages of preparing a Deed of Variation?
Deeds of variation can be useful for many different reasons but they are most commonly used as a mechanism to reduce inheritance tax (IHT) and/or capital gains tax (CGT).
You can adjust the distribution of someone's estate to make use of any available tax reliefs that have not been utilised and if the correct declarations are included in the variation, the gift made under it will be treated by HMRC as a gift from the deceased rather than the beneficiary who inherited. This will avoid the need for an original beneficiary to have to survive the date of the gift by 7 years for it to fall outside their estate for IHT purposes.
If you want to use a deed of variation to help reduce tax, it's essential to get expert legal advice to make sure you're doing what's best for the estate.
What changes can I make under a variation?
Whilst you can only vary your own inheritance, deeds of variation can be used to change the distribution of an entire estate to benefit everyone. If that is the case, all the beneficiaries of an estate might decide collectively how that estate should be varied and enter into the same deed of variation.
The provisions of the variation can be tailored to meet your needs and requirements and can be as simple or complex as you need them to be. You might want to:
- Redirect part of your inheritance to beneficiaries of your choice;
- Make a gift to charity;
- Give away your whole entitlement; or
- Set up a trust.
You can enter into more than one variation but each variation must relate to a different part of your entitlement.
You cannot vary the appointment of executors or guardians appointed in a Will.
What do I need to consider when making a Deed of Variation?
If you're trying to work out the best way to structure a deed of variation we would recommend taking professional advice. The last thing you want is for the variation to have unintended consequences for you or the other beneficiaries of the estate.
It is important to consider the effect of the variation on your own circumstances as well as the estate as a whole. If a variation results in an additional tax liability for the estate for example, the Personal Representatives (Executor or Administrator) of the estate will need to be included as parties to the deed and provide their consent to the variation for it to be effective.
You can enter into a variation before or after a Personal Representative gets the 'Grant of Representation' (Probate) to start administering the estate but for tax reasons, however, any changes must be made within two years of the person's death.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.