Occasionally we’re asked a more complex question about Wills and there’s one that comes up more frequently than others, so Duncan Orr, Director and Chartered Wealth Manager at Swindells, asked Amy Lane, Solicitor at Thomson Snell & Passmore to share her expert’s answer.
Question from Duncan:
Amy, I was recently asked if it’s possible to change someone’s Will within two years of their death. Why might they consider doing this and what are the advantages?
Let’s start with what a Deed of Variation is.
A Deed of Variation (which is sometimes referred to as a post death variation or a deed of family arrangement) can be used to ‘change’ someone’s Will within two years of their death.
Duncan: What does this involve?
Amy: Where a beneficiary is entitled to part of the deceased’s estate under their Will (and the same applies to intestacy – where somebody dies without a Will), the beneficiary may
change the way the inherited asset(s) are received by using a Deed of Variation.
Duncan: Is this simply changing the original Will?
Amy: A Deed of Variation is often referred to as changing the Will itself, which is a misconception.
The Will itself cannot be changed after someone has died. However, a Deed of Variation redirects all or part of an inheritance, and it is treated as a gift by the person executing the Deed of Variation.
The Deed of Variation itself creates a statutory fiction in which HM Revenue &Customs will treat the gift as having been made by the person who has died, not the original beneficiary under the Will. This applies for both Inheritance Tax (IHT) and Capital Gains Tax purposes.
Duncan: Why would I do this, what are the advantages?
Amy: The advantages of using a Deed of Variation are (but not limited to):
- To save Inheritance Tax (IHT);
- To make provision for someone who was omitted from the Will or who may not have received adequate financial provision;
- To alter gifts under a Will, such as increasing a legacy or an outright interest of the residue of the estate;
- To redirect the deceased’s share of a jointly owned asset, such as an asset which would pass automatically to a surviving joint tenant, such as a bank account or a property.
Duncan: What should I be aware of?
Amy: Care must be taken with a Deed of Variation as a Deed of Variation requires the consent of all beneficiaries who are interested in the asset in question.
In addition, there can be problems that arise where a beneficiary is under 18, or under the age that is specified in a Will.
Duncan: Can you give me an example of a Deed of Variation?
Amy: Deeds of Variation are useful when you would like to specify who should receive the asset, for instance, giving money you are inheriting to children or grandchildren, rather than
keeping it yourself.
It is, however, possible as an alternative to executing a Deed of Variation to disclaim an inheritance under a Will or the intestacy rules. For a disclaimer to be valid it must be made before receipt of any benefit or income from the asset in question.
It is normally preferable to do a Deed of Variation as opposed to a disclaimer, as disclaimers do not allow you to disclaim in favour of a particular person. Therefore, it is important that advice is sought before simply disclaiming an inheritance, as the inheritance that you are disclaiming may fall into the hands of somebody that you may not have chosen yourself.
Deeds of Variation can also be very useful for your own personal tax planning and should be reviewed in the round as part of any IHT planning, and particularly if your estate is over the prevailing IHT rates and you have inherited assets from another person within the last two years.
“Thank you very much to Amy for this clear and concise explanation.”
In conclusion, a Deed of Variation can provide a significant tax planning opportunity and should be considered by anyone who is receiving an inheritance, or has received one recently, as there is a small window of opportunity (namely the two years referred to above) in which you are able to take advantage of the tax benefits that a Deed of Variation would provide.
Should you have a questions regarding your Will or other financial matters then please get in touch