A will is often legally referred to as a ‘Last Will and Testament’ – and indeed, is considered the last declaration of how an individual wishes their estate to be distributed on their death. However, there is an important way in which wills can be effectively changed after an individual’s death, that may prove useful for a number of reasons.
Here, Jill Waddington looks at Deeds of Variation, and how and why they might be used.
What is a Deed of Variation?
A Deed of Variation is a document that allows the beneficiaries of a will to change how the estate is distributed. A Deed of Variation can be used to add a new beneficiary/beneficiaries, or to change the way an estate is distributed between the existing beneficiaries. Although a Deed of Variation doesn’t need to be officially registered, those beneficiaries affected by the changes, and any new inheritors all need to sign the document, which must then be agreed upon by the Executor of the will.
A deed of variation can also be used in the event that there is no will in place and an estate is divided according to the rules of intestacy.
Should a variation increase the amount of inheritance tax due, a copy of the deed will need to be sent to HMRC within six months.
When might a Deed of Variation be used?
It isn’t uncommon for a testator’s family circumstances have changed since they made their will, and the beneficiaries may agree that the new family member should receive a share.
Similarly, where a friend or family member has played a greater role in the care of the deceased, it may be agreed that they are added as a beneficiary or that they should receive a greater share of the estate.
In some instances, for example, if one of the beneficiaries is particularly wealthy, they may decide that they do not really need their share of the estate, and decide it would be better used by other beneficiaries.
Another reason to consider a Deed of Variation is as a means of mitigating Inheritance Tax or Capital Gains Tax liability. The rules around taxation are complex, but where an estate is worth over the applicable nil rate band and is not passed on to an exempt beneficiary (a spouse or a charity), the inheritance tax liability is likely to be due. The use of a Deed of Variation is a legally permittable means of reducing or avoiding the amount of tax that is due, either by electing a new beneficiary or diverting assets so that they benefit from tax relief.
Importantly, provided a deed of variation is completed within two years of the testator’s death and all statutory conditions are complied with, the variation takes place retrospectively for inheritance tax and capital gains tax purposes.
When using a Deed of Variation, it’s important to get it right the first time as it cannot be undone. Furthermore, amended versions or new deeds of variation for the same assets are not viewed in the same light from a legal or taxation perspective, so it is always important to take legal advice before entering into a Deed of Variation.
Jill Waddington is a solicitor specialising in private client law at O’Donnell Solicitors. Please contact Jill Waddington on 01457 761320 to arrange a convenient appointment to discuss any aspect of probate or estate administration.