Many of us believe that once our Will is drafted and witnessed it can’t be changed. But a simple tool – called a Deed of Variation – can sometimes be used to make changes that can help reduce Inheritance Tax for your beneficiaries. Steve Wright, our Estates Director, looks at when and how a Deed of Variation is used.
One of the most important documents which you might ever sign is your Will. This powerful tool lays out what you want to happen to your Estate, and how your money and possessions will be shared between your chosen beneficiaries. Given the formal process of how any Will is put together, and witnessed, it seems to make sense that it can’t be changed in any way. However, a useful tool called a Deed of Variation can be used to agree changes to a Will, after death. It’s generally used by your beneficiaries and can alter the way in which their part of the Estate is distributed.
How does a deed of variation work?
A Deed of Variation is a recognised legal document which changes the terms of an existing Will or Trust. To be valid it must be set up within two years of the date of death.
It works to change a beneficiary’s share of inheritance by redistributing the assets. One of its key benefits is that it can help reduce Inheritance Tax – perhaps by adding in a gift to charity or setting up a Trust.
It’s typically used to:
- Add new beneficiaries
- Redirect specific assets to different beneficiaries
- Give away any entitlement
- Set up a Trust
What can’t a Deed of Variation change?
There are some limitations which a Deed of Variation can’t be used for, including:
- Changing other people’s inheritance without their consent
- Awarding a larger share of the Estate to an existing beneficiary – unless it’s gifted by another beneficiary
- Altering named executors or guardians
How does the process work?
If the Deed of Variation is required, a solicitor will need to be instructed to prepare the document. Any party giving up some or all of their entitlement must agree, and if some of the beneficiaries are minors or aren’t able to make decisions themselves the courts will need to approve the process, which could create a delay.
Are there tax advantages?
Using a Deed of Variation can create tax advantages. If your Estate isn’t making best use of exemptions and tax reliefs the Deed can help restructure things and alter who inherits and in what proportions. For example, one of your children may decide that they are financially secure and don’t need the inheritance, and would prefer to pass it directly on. Rather than this being handled as a potentially taxable gift, a Deed of Variation could be used to help.
Another point to note is that the UK tax authorities, HMRC, only need to be told about the Deed if more tax is due in the Estate.
To discuss any aspect of your Estate plans, including the use of a Deed of Variation, please contact your nearest office.
The Fry Group – UK
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