Posted on Feb 15, 2017 in Private Client by Graeme Dickson
A couple of years ago, it looked like the demise of Deeds of Variation was on the cards following the Chancellor of the time, triggering a review into their use. But two years on, the Treasury is yet to act.
So for now, they remain a possibly useful tool to be utilised by beneficiaries who do not like what the Will or (if the deceased was intestate, ie didn’t have or are deemed not to have a Will) the law provides in terms of succession. In the latter case, often the predefined order of succession set down in a law over 50 years’ ago may well not fit in with what the beneficiaries wish had been the position.
In essence, a Deed of Variation lets a beneficiary alter where their entitlement would have gone under the original terms of the Will or under intestacy. If a number of (or all) the beneficiaries are in agreement, it can result in radical changes. The main advantage is that, so far as the law is concerned, it is as though the deceased’s Will has been retrospectively rewritten or they actually left a Will in agreed terms. This can mitigate potential tax consequences (both in terms of Inheritance Tax and/or Capital Gains Tax). Often with careful planning potential tax liabilities can be completely avoided.
But there are other reasons for a Deed of Variation, such as to provide for someone omitted from a Will or re-balance the distribution to beneficiaries where the original provisions are in hindsight unbalanced. Often it allows for the passing of assets to skip a generation. It of course depends on those who benefit under the existing Will or the law, agreeing to alter their entitlement. Where families get on with each other, Deeds of Variations can be very useful.
Looking at the practicalities, there are only a few strict rules relating to Deeds of Variation. To be effective for tax purposes, they must (i) be in writing; (ii) occur within 2 years of the death; (iii) set out the proposed changes; and (iv) be signed by those so affected. In addition there is specific wording which needs to be present to state that those signing it intend certain provisions within the relevant tax legislation to apply. If the Inheritance Tax due increases as a result of a Deed of Variation’s terms (which seems an unlikely given the normal motivation for such documents), the Executors also need to sign the Deed.
The timing of someone passing is often unpredictable and making sure your Will is always up to date with the changes (good and bad) that life brings is not normally an immediate priority. I often deal with Wills written decades’ ago. So Deeds of Variation canalso be a useful method to “update” a Will’s provisions and allow the law as it stands today to be used to best effect.
While ideally a Will exists and its terms provide for the appropriate distribution of an estate, for now a Deed of Variation offers a useful (albeit not definitive) safety net for those left behind when the Will does not do all a beneficiary hoped.
Graeme Dickson is an Associate in our Private Client department providing specialist advice on Wills, Powers of Attorney and Executry services. If you have any questions about these services please contact Graeme on the details below.