A Deed of Variation is a document that allows beneficiaries named in a Will, or under intestacy rules (if there is no valid Will) to transfer their inheritance (either fully or partially) to a different party.
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Why have a Deed of Variation?
Some reasons for a Deed of Variation include:
Saving Inheritance Tax either immediately or upon the beneficiary’s death. For those who inherit and are already wealthy, the gift could mean a second lot of Inheritance Tax payable upon death. Therefore many would prefer to pass on the gift to someone who is in need of it and does not already have an IHT to pay. If the beneficiary inherits and then transfers the gift to someone else without a Deed of Variation, then there will be further IHT to pay if they die within 7 years.
To provide for someone who has been omitted by the Will, or if they received less than they should have.
To change the type of gift set out by the Will, e.g. amend a right to receive income annually to receiving a lump sum of money or property instead of it being held in a trust under the Will.
To correct any mistakes, omissions or clarify the contents of the Will
To sever any jointly-owned property or assets retrospectively, so that it doesn’t automatically pass on to the surviving joint owner in full.
There has to be a formal agreement by everyone who is reducing or forfeiting their right to benefit when making a Deed of Variation. For under age children to give up any benefits, there has to be a very valid reason as well as the Court’s consent. There are no problems if the children are gaining benefits.
How to apply for a Deed of Variation?
Although a Deed of Variation can be completed at any time, it is recommended to do so during the period of two years after the death. In order to save Inheritance Tax or Capital Gains tax, the deed has to adhere to the following rules:
The deed must be completed within two years of the date of death;
It must include any appropriate tax declarations;
There can’t be any reciprocation i.e. cash payments or exchanges to any beneficiaries that are giving up a benefit when entering into a deed;
One asset cannot be changed more than once in different deeds, however it is acceptable to have more than one deed as long as they deal with different assets.
Be warned that a Deed of Variation will effectively replace the old Will (or intestacy) with a new one (or as an codicil to an existing Will) for the purposes of Tax and distribution. A Deed of Variation can be produced before or after probate, regardless of whether the assets have been distributed already.