Deeds of variation

If you have been left a gift or a share of residue you may decide that you no longer need the gift or would rather pass it to someone else.  You may be able to redirect the gift using a deed of variation.

A Will or, if there is no Will, the rules of intestacy, determine how a person’s estate will be distributed when they die.

If you have been left a gift or a share of residue you may decide that you no longer need the gift or would rather pass it to someone else.  You may be able to redirect the gift using a deed of variation.

What is a deed of variation?

A deed of variation is a document that allows a beneficiary of a deceased’s estate to alter what they are entitled to receive from the estate, such as land, cash, a share in the residuary estate or a beneficial interest in a trust.

It enables a beneficiary to rearrange or redirect the interest that came to them originally from the deceased’s estate, either by the Will or under the intestacy rules.  In effect, the original beneficiary is transferring to a new beneficiary some or all of the interest they have inherited.  The new beneficiary can be anyone, irrespective of whether they are already named in the Will or benefit under the intestacy rules.

Why have one?

A beneficiary may want to redirect the assets to which they would otherwise be entitled from a deceased’s estate for a number of reasons. For example, to:

  • Provide for others who are in greater need of funds or other resources than the original beneficiary.
  • Save tax by:
  • giving additional assets to a beneficiary who is exempt from IHT, such as a charity either by reducing the overall charge to tax or by giving 10% or more of the net estate to charity so as to benefit from the lower 36% rate of IHT (see Practice note, Inheritance tax: leaving 10% of an estate to charity);
  • redirecting assets qualifying for relief from IHT from an exempt beneficiary to non-exempt beneficiaries so that the relief is not wasted. For example, if a deceased’s estate includes assets that qualify for agricultural property relief (APR) and their spouse inherits these assets as part of the residuary estate, then APR is not available because the beneficiary of them (the spouse) is exempt from IHT; or
  • using the deceased’s IHT nil rate band by creating a discretionary trust or making an absolute gift of the value of the nil rate band (see Practice note, After death variations: IHT and CGT: Is a variation creating a nil rate band trust still relevant? );
  • using the deceased’s residence nil rate band by redirecting the deceased’s qualifying residential interest to their descendants (see Practice note, Inheritance tax: residence nil rate band).

Advantages of a variation

The main advantage is the retrospective treatment of the gift i.e. from death and allows for retrospective tax planning by the deceased’s beneficiaries.  If the original beneficiary merely gifts the asset to the new beneficiary, if they were to die within 7 years of the date of the gift, the value would be taken into account when calculating the inheritance tax on their estate.

Other reasons why a deed of variation may be appropriate are:

  • allows the original beneficiary to control the redirection of either all or part of their interest in the estate, for example, to another individual, a charity or a trust that they choose
  • reduce the amount of inheritance tax or capital gains tax payable
  • provide for someone who was left out of the Will, perhaps because the Will had not been updated recently
  • move deceased’s assets into trust
  • clear up any uncertainty over the Will or rearrange gifts because the law has changed since the Will was made
  • record a settlement between parties arising from a claim about the validity of a Will or a claim under the Inheritance (Provision for Family and Dependants) Act 1975

How long do I have to decide whether a deed of variation is appropriate?

A variation can be done before or after the grant of representation is obtained.  It must however be done within 2 years of the death of the deceased to take advantage of the tax benefits.

Disclaimer as alternative to variation

If a beneficiary does not want to benefit from the estate, they can disclaim their interest i.e. refuse it completely.  In order to do so, they must not have accepted any benefit from it before disclaiming and the original beneficiary has no say over who should receive the gift instead.

Sometimes a Will may say what will happen if a gift is disclaimed.  If it does not, the gift will be returned to the estate.  If it is a pecuniary or specific gift, it may fall into residue but if it is a gift of residue then it will fall under the intestacy rules.

How can Greenwoods GRM help?

We can advise whether a deed of variation is suitable for your circumstances and the implications for having one.

Let us help you to plan for your future.

Call our Wealth Preservation enquiry line on +44 (0)203 691 2080 and we will put you in touch with a lawyer who can help.

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