Changing a Will After Someone Has Passed Away: Deeds of Variation
A Deed of Variation is a document used by estate beneficiaries to redistribute assets they are entitled to inherit.
It can be used to change a Will after someone has died or redistribute assets flowing through intestacy.
When is a Deed of Variation useful?
A Deed of Variation might be used when a Will or intestacy provides an unfair result in the beneficiaries’ eyes.
The following are some examples of when this may be the case:
- Exclusion of a family member: If the Will excludes a child, grandchild, or dependent from whom the Deceased would have wished to benefit, the beneficiaries can choose to direct their individual inheritance to this person or all agree to give the person a portion of their inheritance. This can help to avoid claims against the estate for appropriate financial provision.
- Beneficiaries in need: You might not need your half of the estate; therefore, you want to give it to someone else who might. Perhaps you are financially well, but a sibling is struggling.
- Charitable donation: You may desire to donate a portion of your inheritance to charity or a cause important to your heart. In some circumstances, this has tax implications.
- Balancing lifetime gifts: The deceased may have made lifetime gifts but did not manage to balance things out before death; thus, a modification can accomplish equality.
Deed of Variation vs. Making Gifts Yourself
The advantage of carrying out the foregoing acts through a Deed of Variation rather than gifting the money personally after receiving it is that you will not be exposed to the tax ramifications of making that gift.
The Deed of Variation will ensure that the redistribution will be read back as a gift made by the Deceased.
You do not have to live seven years after donating to avoid Inheritance Tax and Capital Gains Tax effects on your estate when you die.
Tax Advantages of a Deed of Variation
A Deed of Variation can also be used for additional tax advantages, such as:
Donating 10% of your estate to charity can reduce the estate’s Inheritance Tax rate from 40% to 36%. This can result in your beneficiaries receiving a larger share of the estate.
Your estate may already be taxable for Inheritance Tax, and you may not want to add more monies that will be taxed at 40% upon your death. You may wish to direct your inheritance to someone whose estate is not yet taxable or who has more time to donate to reduce the tax payable upon their death.
You can also put the inheritance into a trust to secure future generations’ assets. Subsequently, the trust would be taxed at the lifetime trust rate, which is lower than the death tax.
You can reroute gifts to take advantage of applicable tax breaks and exemptions. For example, shifting a gift of property to a direct descendent of the dead would allow the estate to utilise their Residence Nil Rate Band if the property was not already granted to one.
Who Must Agree to a Deed of Variation?
Any beneficiaries affected by the modifications it seeks to enact must agree on a Deed of Variation.
It should also be signed by the executor of the will or the administrator of the estate (since the variation may change the tax position, which must be adjusted before final distribution).
In some circumstances, inheritance tax may be lowered, while in others, it may be increased.
It is crucial to note that a beneficiary has just the authority to amend the distribution of their portion of the estate and will require the permission of everyone else who would be impacted.
All beneficiaries affected by a Deed of Variation must be over the age of 18.
How much time do I have to perform a deed of variation?
Modifications can be implemented by a Deed of Variation either before or after the acquisition of the Grant of Probate. However, to avail oneself of the tax advantages, the deed must be executed within two years following the demise of the individual in question.
In addition, there are other special formalities that must be adhered to while preparing a deed of variation.
