A Deed of Variation is a legal document that allows a beneficiary of either an estate or an intestacy to redirect all or part of the inheritance they have received following someone’s death. This is an incredibly useful document, and many people have never heard of it. It potentially alters tax outcomes, provides for others not already included, and can resolve any family concerns.
A common scenario that arises during meetings I have with my clients is when they are thinking about gifting some money that they have inherited. If they give that money away without entering into a Deed of Variation, then the gift forms part of their own estate for tax purposes.
If, however, a Deed of Variation is prepared formally redirecting all or part of the inherited money to the new beneficiary, then the gift is treated as never having been in the first beneficiary’s estate to start with and therefore does not affect their own tax position.
Why would you use a Deed of Variation?
- Family changes: adjusting distributions to reflect current relationships. The will may have been prepared many years before and family dynamics change
- Inclusion of new beneficiaries: there may be new grandchildren for example, who were born after the will was prepared, who you would now wish to include
- Tax efficiency: you may wish to redirect your inheritance to reduce your own estate, ultimately reducing your own inheritance tax liability
- Charitable giving: you may wish to include gifts to charities for legacy purposes or for tax purposes
Are there any requirements?
- Two years: the Deed of Variation has to be entered into in the two years following the date of death. It can be used after the two-year period, but it will not take effect for inheritance tax or capital gains tax purposes
- Adult: the variation can only be completed by an adult beneficiary. A minor beneficiary (under 18 years) cannot vary their entitlement, unless a court agrees
- Agreement: all affected beneficiaries must agree
- Writing: it must be in writing and be signed by all parties affected
- Revoked: it cannot be revoked once completed
- Consideration: the beneficiary redirecting their entitlement cannot receive any form of ‘consideration’ outside of the estate in exchange for the redirection
- HMRC: if the changes affect the tax position, HMRC must be notified
How do I make a Deed of Variation?
A Deed of Variation is a valuable tool and it is always advisable to seek professional assistance when considering a Deed of Variation. It can be complex and to ensure it fully works in the future the wording must be correct, accurate and certain.
Our Wills Trusts and Estates Team here at DFA Law are on hand to assist with any queries in relation to estate administration, estate planning and Deeds of Variation.
For more information, contact Katie Nightingale on 01604 609560 or at katie.nightingale@dfalaw.co.uk or visit the dfa law website
