Deed of Variation

If there would be an advantage to us to VARY how we inherit from a deceased person’s estate, either via their Will or by the Law of Intestacy because there was no Will, then we have up to TWO years after that person died to do so. This process is known as undertaking a Deed of Variation.

Why Would we Want to do This?

There can be many reasons why we would consider a Deed of Variation; however, below are some examples of why we would consider doing this.

Not wishing to inflate the value of our own estate yet further and create a potentially larger Inheritance Tax liability when we subsequently die; or

Wishing for someone else (perhaps our own child or children) to benefit from an inheritance initially left to us by a deceased person; or

To redirect a share in a property or land which we inherited automatically from a deceased co-owner of that property or land, which was not the intention of the person who died.

How do we do This?

A Deed of Variation may be undertaken provided some simple requirements are met. These include that anyone disadvantaged by the change (often only us) agrees to it, and the process is completed within TWO years of the death by which we are inheriting.

However, a Deed of Variation is not the only option available. If an asset or share in an estate is passed to a person under a deceased person’s Will, then the beneficiary may choose what they wish to happen with that asset or estate share. If they do not wish to inherit, then they have three main options:

Accept the gift(s) but give it/them away to someone else thereafter; or

“Disclaim” their gift(s) so it/they do not pass to them, but instead to someone else under the terms of the deceased’s Will; or

Complete a Deed of Variation to change the destination of the gift(s).

The Benefits of a Deed of Variation

The benefit of a Deed of variation is that variations made this way are treated as though the variation had been achieved by the deceased’s Will, or their death if there is no Will. If the original beneficiary accepted the gift(s) but passed it/them on to someone else thereafter, then this could create adverse Inheritance Tax consequences for that person gifting the unrequired gift(s).

The new recipient of the unrequired gift(s) can be anyone the original beneficiary chooses, even someone who was not known to the deceased. The original beneficiary can also dictate the terms on which a third party receives the gift(s). If the original beneficiary simply disclaims their inheritance, then they cannot select who receives the gift(s) in their place. This is automatically dictated instead by the terms of the Will, or the Law of Intestacy if there is no Will.

Conditions of a Variation

A variation does not need to be undertaken by an official deed. A letter or other document would be sufficient, but the variation must be in writing and must meet certain conditions as follows:

Any variations made in this way must be completed within TWO years of the death of the person whose Will is being varied or for whom the Law of Intestacy (if there is no Will) is being varied. Any other beneficiaries to the estate who will be disadvantaged by the variation (if any) must also officially agree in writing to the changes. If there are children or unborn children who will be disadvantaged, then you may need to go to court to obtain approval for the variation. A parent’s signature is not sufficient.

The variation document must clearly state which parts of the estate are being varied and who will benefit from the variation. If the destination of stocks, shares or marketable securities is changed, then a Stamp Duty certificate must be included as part of the variation.

The destination of the same assets may not be changed more than once. If the assets are redirected more than once, then the variation will not be treated as though the original deceased person had made it.

The original beneficiary cannot be compensated for their loss. If a variation is made and assets from outside of the estate are used to pay the original beneficiary for their loss, then that variation shall not be treated as though the original deceased person had made it themselves.

If a variation passes a new legacy to a charity, then that charity will need to be notified of the redirection of assets to them.  Evidence of the notification will need to be provided to HMRC. The charity does not need to sign the variation document.

The variation must contain a statement that the parties signing the variation document intend it to take effect for tax purposes (Inheritance Tax and Capital Gains Tax). The statement must contain the appropriate statutory references. If a variation means that there will be more Inheritance Tax to pay, then a copy of the variation must be sent to HMRC within 6 months of undertaking it. If the amount of Inheritance Tax payable does not change, then there is no need to send a copy of the official document to HMRC.

For further information, WITHOUT consultation fees nor obligation, then please visit TRF Wills.