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The way in which an estate is to be distributed after death is usually detailed as part of a person’s will. A will allows the person in question to officially document their wishes in this regard, which includes the terms and conditions under which their assets are to be administered.

A change in circumstances that occurs following the person’s passing may mean that the will does not offer ideal provision for the beneficiaries involved. In cases such as these, Deeds of Variation exist to allow beneficiaries to alter the terms of the will. Through using a Deed of Variation, property gifted to a specific beneficiary might for example be used to more adequately provide for someone else.

Beneficiaries may consider making a Deed of Variation for a wide variety of reasons. Some of the most common reasons for doing so include:

• Protecting others: By allowing a beneficiary to alter the way in which assets are distributed, a Deed of Variation can help redirect assets to those who are more vulnerable or in greater need. This may be the case if a beneficiary wishes to protect a loved one from residential care home fees or wishes to provide for any special needs.
• Placing the original gift in trust: Whilst a beneficiary may still be treated as the settlor with regards to Capital Gains Tax and Income Tax (depending on the specific benefits), placing a gift in trust may prevent the asset from being subject to Inheritance Tax in the future.
• Gifting additional assets to charity: Apart from supporting a charitable cause, gifts to charity can also reduce tax-related charges. By gifting 10% or more of the net estate to charity, the estate may be able to benefit from the lower 36% Inheritance Tax rate.
• Using a Deed of Variation for Inheritance Tax reliefs: Redirecting assets qualifying for relief from Inheritance Tax from an exempt beneficiary to a non-exempt beneficiary can help ensure the relief doesn’t go to waste. For example, if a deceased’s estate includes assets that qualify for Agricultural Property Relief (APR) or Business Property Relief (BPR) and a spouse inherits these assets as part of the residuary estate, then the relief is ‘wasted’ due to the beneficiary being exempt from Inheritance Tax.
• Using the Nil Rate Band: Beneficiaries can leverage the Inheritance Tax Nil Rate Band over the first £325,000 of the estate by creating a Discretionary Trust or by making an absolute gift of the value of the Nil Rate Band.

Aside from the benefits set out above, a Deed of Variation provides a number of further advantages, which may include:

• Control: Deeds of Variation give beneficiaries greater control of either all or part of their interest in the estate, allowing them to distribute their assets in whichever way they see fit.
• Timing: A Deed of Variation can be made during the administration of an estate or after the process has been finalised. In the latter case, a Deed of Variation can be drawn up after assets have already been transferred to you.

Given the nature of the document, a Deed of Variation must meet a number of legal requirements in order to be considered valid. Conditions set out as part of the Inheritance Tax Act 1984 and the Taxation of Chargeable Gains Act 1992 require it to:

• Be dated within two years of the person’s death
• Include a statement of intent that specifies that the Taxation of Chargeable Gains Act 1992 and the Inheritance Tax Act 1984 apply to the document
• Be signed by all beneficiaries who might be negatively impacted by the variation
• Clearly set out the alterations that are being made
• Be made on behalf of a beneficiary who is over 18 years old and of sound mind
• Be signed by executors if the Variation increases the Inheritance Tax payable

The solicitors at Smith Partnership offer many years’ worth of practical experience dealing with all aspects of wills and inheritance. From will writing to Inheritance Tax planning and everything in between, we’re proud to offer a fully comprehensive service suited to your individual needs.

Our experts can offer legal assistance on all matters relating to Deeds of Variation. Taking a friendly, client-focused approach, our wills and inheritance team is on hand to offer a guiding hand whenever the need arises.