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Deeds of Variation

There are several reasons why you may want to change the distribution of an estate

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Deeds of Variation, Disclaimers and Appropriation can be used to redirect assets from a deceased person’s estate away from the initial beneficiary.

What is a Deed of Variation?

A Deed of Variation is a document whereby, after a death, a beneficiary can transfer their entitlement under a Will or Intestacy to someone else or to a trust.

There may be circumstances following a death, where the beneficiaries of a Will or those entitled to inherit under the rules of intestacy wish to change the way in which the estate is distributed because it does not suit their personal needs. The possibility of a variation means that any inheritance can be re-shaped to suit the specific needs and wishes of a beneficiary when the original Will did not. Often, Wills can be out of date or written in ignorance of a beneficiary’s personal circumstances. If a variation is created within two years of the death of the testator, the new arrangements can be treated as having been put in place by the testator for the purposes of inheritance and capital gains tax.

There are several reasons why you may want to change the distribution of an estate. These include (but are not limited to):

  • Making the distribution equal between the beneficiaries
  • Skipping a generation
  • Providing for someone who the Will did not include or for whom the rules of intestacy do not apply, such as a partner, stepchild, friend or charity
  • Tidying up any uncertainty in the Will
  • Inheritance tax planning reasons, such as including a charity as a beneficiary to reduce the amount of inheritance tax that needs to be paid by the estate or to include a trust to prevent the loading up of the beneficiary’s own personal estate.

How does a Deed of Variation save time and money during Probate?

There are a number of ways to save time and money during Probate by using a Deed of Variation. Some beneficiaries will use this to redirect their inheritance directly to their children, so that the inheritance skips a generation and is only liable for inheritance tax on the children’s estate. The variation, if made within two years, will be treated as being made by the deceased as opposed to the person varying, and so there is no requirement for the gift to be survived by seven years for inheritance tax purposes as would be the case had the assets been accepted and then gifted by the parent.

A variation into trust can take the fund out of the 40% tax environment and save considerable tax going forward. Care needs to be taken to not prevent the application of the inheritance tax benefits of the main residence nil rate band, however.

Varying an estate to increase existing gifts to charity up to 10% of the estate could also reduce the applicable inheritance tax on the estate, by ensuring the 36% tax rate applies.

What is a Deed of Disclaimer?

A Deed of Disclaimer is a document wherein a beneficiary disclaims or refuses to accept their inheritance, instead allowing the contingency provisions within the Will or Intestacy to come into effect. The disclaimer essentially allows the Personal Representatives to treat the beneficiary as having died before the testator.

This is often used to skip a generation, or where there is a moral principle held by the beneficiary, which means that they would prefer not to accept the gift.

What is a Deed of Appropriation?

A Deed of Appropriation is a document which deems a beneficiary to have received a part of the deceased’s estate at Probate value (irrespective of what the value is at the time). This is particularly useful where there has been a significant gain made after the death of the deceased which would, if not appropriated to a non or low-tax paying individual, have triggered a tax liability. It is common for appropriations to be used where there are charitable beneficiaries who are not liable for tax and for individuals who have full capital gains tax allowances and pay tax at a lower rate than the estate. Assets can be appropriated to a number of beneficiaries, so multiple annual allowances can be used to offset a capital gain.

Why choose Price Slater Gawne?

This is a complex area of Estate Administration, and we would advise you to consult a lawyer who is an expert in this field. Please get in touch with our team by telephoning 03333 058375, or email WealthProtection@psg-law.co.uk. 

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    Paralegal, Court of Protection & Wealth Protection

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