A Deed of Variation is a document which is used by beneficiaries of an estate to redistribute assets which they are due to inherit.
It can be used to amend a Will after someone has passed away or to redistribute assets which are passing by way of intestacy.
A Deed of Variation can be used when a Will or intestacy produces an unfair result in the eyes of the beneficiaries.
Some examples of when this might be the case are highlighted below:
Exclusion of a family member - If the Will leaves out a child, grandchild, or a dependent whom the Deceased would have wanted to benefit. The beneficiaries can choose to redirect their own inheritance to this person, or all the beneficiaries can agree to give the person a share of their inheritance. Doing so can help avoid claims against the estate for reasonable financial provision.
Beneficiaries in need - You may not need your share of the estate, so you would like to redirect it to someone else who might be in need. It may be that you are financially stable, but a sibling is struggling.
Charitable giving - You may wish to donate part of your inheritance to charity or a cause close to your heart. In some cases, this also has tax benefits.
Balancing lifetime gifts – The deceased may have made lifetime gifts but did not manage to balance things out before death, and therefore a variation can achieve equality.
The advantage of carrying out the above actions through a Deed of Variation rather than gifting the money yourself after receiving it is that you will not be subject to some tax implications of making that gift.
The Deed of Variation will mean the redistribution will be read back as a gift made by the Deceased.
You will not need to survive seven years after making the gift to avoid Inheritance Tax and Capital Gains Tax implications on your own estate when you pass away.
For further information on the tax implications of lifetime gifts, you can read our blog on PETs and Gifts with Reservation of Benefit (GROB).
A Deed of Variation can also be used for other tax benefits, for example:
A Deed of Variation must be agreed upon by any beneficiaries affected by the changes it wishes to implement.
It should also be signed by the executor of the Will or administrator of the estate (this is because the variation can alter the tax position, which may need to be corrected before final distribution).
Inheritance Tax may be reduced in some cases but may increase in others.
It is important to note that a beneficiary only has the power to change the distribution of their share of the estate and will need the agreement of anyone else impacted.
All beneficiaries impacted by a Deed of Variation must also be over 18.
You can make changes via a Deed of Variation either before or after a Grant of Probate is obtained, but if you wish to obtain the tax benefits, it must be made within two years of the deceased's date of death.
There are also other specific formalities which need to be complied with when preparing a Deed of Variation.
At Myerson, we have a specialist Wills, Trusts and Probate Team who can advise you on the suitability of a Deed of Variation and assist you in preparing one.
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