Deed of Variation Solicitors
Receiving an inheritance does not always mean you want to keep everything you have been left. You may want some of your inheritance to pass to your children, provide for another family member, give money to charity or change the way an estate has been divided.
A Deed of Variation can, in appropriate circumstances, allow a beneficiary to alter the distribution of an estate after someone has died.
It can be used where there is a Will or where the intestacy rules determine who inherits. However, there are important legal requirements to follow, particularly if the variation is intended to have an effect for Inheritance Tax or Capital Gains Tax purposes.
AFG Law's Private Client solicitors can advise you on whether a Deed of Variation is appropriate and prepare the necessary legal document to record the change.
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What is a Deed of Variation?
A Deed of Variation allows somebody who is entitled to inherit from an estate to change what happens to some or all of their inheritance. Rather than accepting the inheritance personally, the beneficiary can redirect part or all of it to somebody else.
For example, a parent who is financially secure might inherit £100,000 and decide that £50,000 should instead pass to their children. Alternatively, someone might vary their inheritance to provide for a relative who received little or nothing from the deceased's estate.
A Deed of Variation does not rewrite the deceased's entire Will, however. It changes the entitlement of the beneficiary agreeing to the variation. Other beneficiaries do not generally need to agree if their own inheritance is unaffected. However, you cannot use a Deed of Variation simply to reduce somebody else's entitlement without their agreement.
Can you change an inheritance if there is no Will?
Yes, Deeds of Variation are not limited to estates where the deceased left a Will. If somebody dies without a valid Will, the intestacy rules determine who is entitled to their estate. A beneficiary can potentially vary the inheritance they receive under those rules.
This can be useful where the statutory outcome does not reflect what the family considers appropriate. For example, an adult child inheriting under intestacy might decide to redirect part of their entitlement to another person.
Why would someone make a Deed of Variation?
There are many reasons why someone would want to make a Deed of Variation. A beneficiary may simply feel that somebody else needs the inheritance more than they do. Parents sometimes redirect an inheritance to adult children or grandchildren as part of their own long-term estate planning.
A variation can also be used to address the distribution of assets where the beneficiaries agree that a different arrangement would be more appropriate.
Another consideration can be tax. Depending on the circumstances, a properly structured variation can sometimes be used to reduce Inheritance Tax or Capital Gains Tax consequences.
For example, redirecting assets to charity could affect the amount of Inheritance Tax payable by an estate. A beneficiary might also consider their own estate planning and whether retaining a substantial inheritance would increase the value of their estate for future Inheritance Tax purposes.
However, a Deed of Variation should not automatically be viewed as a way of avoiding tax. The tax treatment depends on the circumstances and how the document is prepared. Professional advice should be obtained before making decisions based on possible tax savings.
Is there a time limit for a Deed of Variation?
Timing is particularly important if you want the variation to receive the relevant retrospective treatment for Inheritance Tax or Capital Gains Tax purposes. The variation generally needs to be completed within two years of the date of death for the relevant statutory tax provisions to apply.
This does not necessarily mean that nothing can ever be changed after two years. Beneficiaries can potentially make gifts from assets they have inherited. However, that is different from making a qualifying Deed of Variation within the two-year period, and the tax consequences can be different.
If you are considering changing an inheritance, it is therefore sensible to obtain advice well before the two-year deadline.
Can a Deed of Variation be made after the estate is distributed?
Potentially, yes. A variation does not necessarily have to be completed before the estate is distributed, provided the relevant requirements can still be satisfied. However, matters can become more complicated once assets have been transferred.
For example, a beneficiary may already have received and dealt with part of the estate they now want to redirect.
Taking advice early can make the process considerably easier and allows the proposed variation to be considered alongside the administration of the estate.
Does a Deed of Variation change the Will?
A Deed of Variation does not change the Will in the sense of rewriting it after their death. Instead, the beneficiary changes what happens to the inheritance to which they are entitled.
The person making the variation cannot use it to control assets belonging to other beneficiaries. If several people's inheritances need to change, each affected beneficiary will normally need to agree to the alteration affecting their entitlement. The original Will also remains an important document in the administration of the estate.
What if a beneficiary is a child or lacks mental capacity?
Additional difficulties arise where the proposed variation would affect somebody who cannot provide valid consent themselves. A parent cannot simply agree to reduce a child's inheritance because they believe a different arrangement would be preferable.
Similarly, where a beneficiary lacks capacity, another person cannot automatically sign away that beneficiary's entitlement. Court approval may be necessary where a proposed arrangement affects the interests of a child or somebody who lacks mental capacity.
This is an area where legal advice is strongly recommended before attempting to agree changes between family members.
Do all beneficiaries have to agree to a Deed of Variation?
Not necessarily. If you are changing only your own inheritance and nobody else's entitlement is affected, the agreement of every beneficiary will not normally be required. If the proposed variation changes another beneficiary's entitlement, that person will need to be involved.
A Deed of Variation cannot be used as a way for one beneficiary or executor to unilaterally redistribute an estate according to what they think would be fairer.
Executors also need to understand the distinction between administering the estate according to the Will or intestacy and implementing a valid variation requested by the relevant beneficiary.
Could a Deed of Variation create a tax liability?
It is important to consider the wider consequences before signing. A proposed variation could affect the estate's tax liability, the beneficiary's own tax position or future estate planning.
There can also be consequences beyond tax. For example, giving away an inheritance can be relevant where somebody is receiving or expects to require means-tested benefits or care funding. A decision that appears beneficial immediately may therefore have unintended long-term consequences.
This is why advice should focus on what you are trying to achieve rather than simply preparing a document.
Do I need a solicitor for a Deed of Variation?
There is no requirement for every variation to be drafted by a solicitor or even necessarily executed as a formal deed. What matters is that the arrangement meets the applicable legal and, where relevant, tax requirements. However, errors can have significant consequences.
The document needs to identify the inheritance being varied, who will receive it instead and the extent of the change. Where tax treatment is important, additional statutory requirements apply.
If several beneficiaries are involved, the estate has already been distributed, a beneficiary is a child or lacks capacity, or the purpose involves tax or wider estate planning, legal advice is strongly recommended.
How AFG Law can help with a Deed of Variation
AFG Law's Private Client team can advise executors and beneficiaries who want to change how an inheritance passes following a death. We can consider what you want to achieve, advise whether a Deed of Variation is appropriate and explain the legal and potential tax implications before preparing the necessary documentation.
We can also consider the proposed change as part of your wider estate planning, including whether your own Will and other arrangements should be reviewed following an inheritance.
If you have inherited under a Will or the intestacy rules and would like some or all of your inheritance to pass elsewhere, professional advice is strongly recommended before making the change.
Contact AFG Law's Private Client team to discuss a Deed of Variation and the options available to you.