Back to Basics – Post death variations (Deed of Variation)

 

A Will can be changed after death provided some simple requirements are met; mainly that those left worse off by the change agree, and the variation is completed within 2 years of the death.

 

If an asset or share in an estate was passed to a person under the deceased individuals will, then that person may choose what they wish to do with the property. If they don’t want the property they have three options:

 

  • accept the gift but give it away to someone else
  • ‘disclaim’ their gift so it doesn’t pass to them and instead passes to someone else under the deceased’s Will
  • complete a deed of variation to change the destination of the gift.

 

The benefit of a deed of variation is that variations made this way are treated as though the variation had been effected by the deceased’s Will. If they accepted the gift but passed it on to someone else then this would be a potentially exempt transfer (PET) and could create adverse inheritance tax consequences for the person gifting the asset.

 

The new recipient of the property can be anyone the original beneficiary chooses, even someone who was not known to the deceased. The original beneficiary can also dictate the terms on which a third party takes the property. If they simply disclaimed their benefit then they cannot choose who receives the property in their place, this is dictated by the terms of the Will.

 

A variation does not have to be done by a deed, you may use a letter or other document, but it must be in writing and must meet certain conditions:

 

Any variations made in this way must be completed within 2 years of the death of the testator (the person who’s Will is being varied). The other beneficiaries to the estate who will be left worse off by the variation must also agree with the changes and must all sign the variation. If there are children or unborn children who will be left worse off, then it may be that you will need to go to court to get approval. A parent’s signature is not sufficient.

 

The document must clearly state which parts of the estate are being varied and also who will benefit from the variation. If the destination of stocks, shares or marketable securities is changed, then a stamp duty certificate must be included with the variation.

 

The destination of the same assets may not be changed more than once. If the assets are redirected more than once then the variation will not be treated as though the testator had made it.

 

The original beneficiary cannot be compensated for their loss. If a variation is made and assets from outside of the estate are used to pay the original beneficiary for their loss, then that variation shall not be treated as though the deceased had made it themselves.

 

If variation passes a new legacy to a charity that charity will need to be notified of redirection of assets to them.  Evidence of the notification will need to be provided to HMRC. The charity does not need to sign the variation.

 

The variation must contain a statement that the parties signing the variation intend it to take effect for tax purposes (Inheritance Tax and Capital Gains Tax). The statement must contain the appropriate statutory references. If a variation means that there will be more Inheritance Tax to pay, then a copy of the variation must be sent to HMRC within 6 months of making it. If it does not change the amount of Inheritance Tax payable, then there is no need to send a copy to HMRC.

 

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