What is a Deed of Variation?

When a person dies, their estate falls to be distributed under the terms of their last Will, or under the Rules of Intestacy if they did not have a valid Will at the date of their death. If a beneficiary of the Will or Intestacy Rules wish to change their entitlement following the death, they can prepare a Deed of Variation (sometimes known as a Deed of Family Arrangement) to achieve this.

Why would I make a Deed of Variation?

A Deed of Variation is a key estate planning tool. It allows an individual to change the inheritance they have received so that it redirects to another beneficiary. There are many reasons a beneficiary may want to do this:

• Balancing Inheritance:
  • To ensure the distribution among all the beneficiaries is equal and fair, especially if one received a smaller percentage than another.
  • To avoid inheritance disputes, or as a consequence of inheritance disputes. There may be issues among the beneficiaries on the distribution of certain assets, for example a property held within the estate. The beneficiaries can prevent these potential disputes by achieving a consensual agreement through a Deed of Variation. If all of the beneficiaries agree with the way the estate is distributed, the likelihood of a dispute is reduced.
• Including New Beneficiaries:
  • To add another individual to benefit from the estate who was not mentioned in the Will, such as grandchildren born after the date of the Will. This can be anyone that the beneficiaries wish, including friends or family members.
• Clarity and Certainty:
  • It can help resolve uncertainties and ambiguities present in the original Will to avoid confusion in administering the estate.
• Providing for Charitable Contributions:
  • A beneficiary can redirect assets to a charity if they wish to support a charitable cause. This is beneficial if the estate is subject to Inheritance Tax as any gifts made to a charity from an estate (whether by the Will itself or under the terms of a Deed of Variation) are exempt from Inheritance Tax and may reduce the overall Inheritance Tax paid on the remaining estate.

A Deed of Variation is a valuable mechanism for a beneficiary for their own estate planning. If a beneficiary already has a taxable estate, they can redistribute inheritance they are due to receive and ensure it does not form part of their own estates.

What if there is no Will?

If a person died without a Will, their estate would pass under the Rules of Intestacy. This dictates for the person’s spouse and children to inherit, but it does not account for unmarried partners, step-children, or friends.

A Deed of Variation would allow for the beneficiaries to give up a part of their estate to benefit another where they know that is what the deceased would have wanted had they made a Will.

How does a Deed of Variation help lessen Inheritance Tax liability?

Inheritance Tax (IHT) may be payable on a person’s estate at the time of death. The current rate of Inheritance Tax is 40%. With a Deed of Variation, the beneficiaries can redistribute the assets to ensure it is tax efficient. One way they can do this is redirecting the estate or part of it to charity. This can be done by utilising reliefs and exemptions that are available for Inheritance Tax.

For instance, the “Residence Nil Rate Band” is a relief available for Inheritance Tax where property is passed to direct descendants. So, by redistributing someone’s estate to their children directly, for example, they can make the most of this allowance and potentially reduce the IHT liability.

Are there any requirements in making a Deed of Variation?

There are formal requirements for a Deed of Variation to be valid and effective and beneficial for IHT and CGT purposes. A Deed of Variation must be in writing, outline what change the beneficiaries wish to make and be signed by all beneficiaries making the variation. For the Deed to be effective for IHT and CGT purposes, it must be completed within 2 years of the date of death.

Additionally, the beneficiary giving up their inheritance must not receive any form of “consideration”, meaning some form of payment or benefit they are receiving from outside the estate in exchange for the variation.

Can a Deed of Variation be revoked?

A Deed of variation cannot be revoked once it has been signed by the parties.

How do I make a Deed of Variation?

For anyone considering making changes to a Will of a loved one that recently passed away through a Deed of Variation, it can be a very complex matter with future implications if not worded properly. Our team is here to streamline the process and address any concerns. We aim to simplify the complexities associated with altering a Will after death, ensuring that the wishes of all parties involved are duly considered and legally executed in a tax efficient manner.

For further information please contact a member of our Wills, Trusts & Probate team.

Email: [email protected]

Telephone: 01256 460830