What are the advantages of a Deed of Variation?
A Deed of Variation is a legal instrument that enables beneficiaries specified in a Will to alter how an inheritance is distributed.
Importantly, it enables the addition of new beneficiaries to an estate by existing beneficiaries. Additionally, it enables them to change how an estate is divided among themselves. There are many reasons why someone might desire to do these things, but the following situations are good instances of when a Deed of Variation may be required.
A mother has four children, but only three of them are given equal parts of her estate in her will. The three beneficiaries feel that the sister who received nothing should also receive a portion of the estate. They consent to designating the sibling as an equal beneficiary by means of a Deed of Variation.
When a man passes away, he leaves two children with an equal share of his estate according to his will. He was taken care of by a close friend in the final year of his life. The friend should receive some funding from the deceased man’s estate, the two kids agree. They transfer £20,000 to the friend using a Deed of Variation.
When a mother passes away, her three children will receive an equal share of her estate.
- A mother has four children, but she leaves a Will that shares the estate between only three of them. The three beneficiaries believe that the sibling who has been left nothing deserves an equal share of the estate. They agree to use a Deed of Variation to make the sibling an equal beneficiary.
- A man dies, leaving a Will that shares his estate equally between his two children. In the last year of his life, he was cared for by a close friend. The two children agree that the friend should be given some money from the man’s estate. They use a Deed of Variation to give the friend £20,000. A woman dies, leaving her estate to be divided equally among her three children. The wealth of the first two kids outweighs that of the third. They decide to divide the remaining estate equally between them and give the less wealthy sister half of it. As you can see, the main benefit of a Deed of Variation is that it permits current beneficiaries to alter the distribution of an inheritance. A Deed of Variation might, however, also lead to a significant tax gain. Estate Planning and Wills of Variation In some cases, a Deed of Variation can be a useful tool for lowering the amount of Inheritance Tax (IHT) due on an estate. IHT is typically due at a rate of 40% on estates that exceed £325,000. Because of this, if the beneficiaries concur to donate 10% of the estate to charity, it would lessen the IHT payable amount to 36%
Similar to this, adding a new beneficiary enables you to transfer all or a portion of a legacy to someone else (such an adult child). This may lower the amount of IHT that must be paid on this area of an estate.
This is a possible tax-efficient method of gifting money. Imagine, for instance, that you get £30,000 from an estate and that you want to transfer the entire sum to your daughter, who is 25 years old. You would need to live for seven years after taking the money from the estate and giving it to your daughter before it was no longer considered part of your estate for IHT reasons. But if you execute a Deed of Variation designating your daughter as the new beneficiary of the initial estate, then the rule of seven years doesn’t apply.
Utilising a Deed of Variation could also result in a number of additional tax benefits, such as a possible reduction in Capital Gains Tax. But due to the complexity of these arrangements, we firmly advise speaking with a member of our dedicated Wills, Trusts, and Probate team for knowledgeable guidance that is catered to your needs.
When am I eligible to file a Deed of Variation?
A Deed of Variation may be executed either before or after a grant of probate. However, if you’re making it for IHT or CGT purposes, you must do so within two years of the deceased person’s passing. Any Deed of Variation must also meet the following requirements in order for HMRC to consider it valid:
- signed by each beneficiary who will suffer a loss as a result of the change or changes
- Indicate precisely which aspects of the estate are being modified and who stands to gain.
Other prerequisites are:
- All recipients must be at least 18 years old.
- The modifications must be accepted by all recipients.
- No existing recipient may receive compensation for changing their share.
- No variations shall be based on payments from persons other than the Estate.
Additionally, it’s crucial to remember that you need court approval if a Deed of Variation will have an impact on children (or unborn children). Finally, it is possible to use a Deed of Variation if you are a beneficiary under intestacy rules (i.e., the deceased didn’t leave a Will). We can explain the guidelines and limitations that apply in this situation to you.
Is a Deed of Variation required?
The answer to this question is very dependent on your personal situation, your goals, and the goals of any other beneficiaries of a will. Even while a Deed of Variation can increase your influence over how an estate is divided and can offer you considerable tax advantages, it’s crucial to get professional counsel.
Please get in contact with us right away at 0808 169 7033 if you’d want guidance on this or any other issue involving wills, probate, or estate planning.