Losing a loved one can be an upsetting, stressful and uncertain time. As things become clearer, you may find that you have inherited under the Will or the Intestacy Rules, but what happens if you wish to redirect that entitlement?
If you have inherited from an estate and are considering redirecting your entitlement, it is important to understand how a deed of variation works before making changes. Getting probate advice can help make sure the document is prepared correctly and reflects your intentions.
A Deed of Variation is a legal document that allows a Will (or the Intestacy Rules) to be changed. In essence, it allows a beneficiary to modify their entitlement, to allow them to re-direct it to whomever or wherever they wish.
There a number of possible reasons for preparing a Deed of Variation:
You may not wish to receive your due entitlement and would prefer to pass this on to someone different, without incurring your own inheritance tax liabilities.
There may be a more tax efficient way of distributing the estate.
Should there be a dispute regarding who is benefitting from an estate, this could help resolve matters.
Whilst there can be many reasons and benefits as to why someone might consider a Deed of Variation, the most common reason is to reduce a possible inheritance tax liability.
Should someone wish to pass their entitlement to someone without a Deed of Variation, it would be seen as a gift from that person for the purposes of inheritance tax. This means, in short, that it would be subject to the usual 7-year survival rule to fall outside the estate for inheritance tax purposes.
Should the desired gift be provided within the Deed of Variation, however, it will be treated as a gift from the deceased’s estate, as opposed to the original beneficiary.
The Deed of Variation can be entered into before or after the Grant of Representation has been approved and can even be entered into after the estate has been administered. The Deed of Variation must be entered into within two years of the date of death in order to take advantage of the possible inheritance tax benefits.
Under a Deed of Variation, you can change the direction of your entitlement. This could be re-directed in part or in full and can be made to a particular person (or persons) of your choice. You can also use a Deed of Variation to help set up a trust.
It is important to note that you can only alter your entitlement once. Whilst there can be more than one Deed of Variation, it cannot apply to anything that has previously been varied. You cannot vary who is named as an executor or a guardian in a Will.
If the variation alters the tax liability of the estate, the Deed of Variation will need to be signed by the personal representatives. Even if the tax liability is unaltered, it may be a sensible idea for them to sign anyway, as this ensures everyone remains on the same page. The Deed of Variation must be signed by anyone whose entitlement is being reduced, as it is critical they agree to the variation.
Changing how an inheritance is distributed can have legal, tax and family implications. Our Probate lawyers can help you understand your options and decide whether a deed of variation is suitable for your circumstances.
A deed of variation needs to be drafted carefully to be effective, especially where inheritance tax or multiple beneficiaries are involved.
If you would like to discuss a Deed of Variation in more detail, please do not hesitate to call us on 0116 212 1000
