Normally after death assets pass on in accordance with a Will or in terms of Intestacy laws. However, there are some circumstances where it is considered that a different division of assets is preferable and in those cases the beneficiaries can enter into a Deed of Variation (sometimes also referred to as a Deed of Family Arrangement) which allows the beneficiaries to redirect their share of an estate to another beneficiary or beneficiaries. The effect of this is as if the variation had been done by the deceased, which can sometimes have positive tax consequences in relation to Inheritance Tax and Capital Gains Tax.
The variation relates to the share of the estate which is passing to a particular beneficiary and not for the entire estate unless it is agreed with all residuary beneficiaries.
Any variation however must be done within two years of the date of death and must be done in writing to be valid for tax purposes. Variations can even be done in the event there is no Will.
Reasons to vary the terms of a Will could include:-
- Equalising the share of bequest to beneficiaries in the event the shares to class of beneficiary were not equal
- Providing for a beneficiary not included in the Will
- As a compromise when there is a dispute/claim as to the validity of the Will
- Leaving legacies to a Charity or Charities which may then reduce the overall IHT payable on the estate
- Passing to different generation to avoid unnecessarily inflating the estate of a named beneficiary
- To resolve a defect in a Will particularly in relation to a “homemade Will”
- Savings on Capital Gains Tax or Inheritance Tax
If the Deed of Variation affects the IHT position it must be sent to HMRC within 6 months of this being signed. Executors only need to be a party to the deed if the tax position is being altered.
If a beneficiary simply wishes to turn down a bequest this can be done by a simple disclaimer.
Whilst it is possible at the moment to vary the terms of your Will after your death in this way it is not something we generally recommend placing reliance on – the law may change. We do recommend that you regularly review your Will to ensure that your wishes are met at the time of your death.
Our Private Client Team will be happy to assist you with the review of your Will and provide you with more information and can be contacted on 0131 516 5354.
This is a general statement of the law and is not to be taken as advice from our firm. Specific advice should be sought in all individual situations.
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.