Losing a loved one can be an emotional and stressful time and sometimes this is made harder by knowing that the last wishes of the deceased may not be truly reflected in their Will. Perhaps they intended to make a change but did not get around to doing so and you would like to respect their wishes. Alternatively, they may not have made a Will, in which case there are statutory rules, the Rules of Intestacy, which define who inherits from the deceased and again, this may not be what you believe the deceased would have wanted.
Is there anything you can do in these circumstances? Fortunately, the answer is yes, it is usually possible to change a Will after death by preparing a Deed of Variation.
Topics to be answered in this article
What is a Deed of Variation?
A Deed of Variation is a document that can alter the provisions of someone’s Will or override the rules of intestacy.
Who can vary a Will?
Only a beneficiary under a Will or the Rules of Intestacy can change the way in which a deceased person’s property is distributed and they can only vary the share to which they are entitled.
When and why might you want to change a Will?
The deceased might have wanted to benefit a friend who has helped them during their illness but they did not get a chance to do so. The beneficiaries of the estate may wish to insert a legacy into the Will to reflect the deceased’s wishes. If this reduces the residue then all residuary beneficiaries must agree to the change.
Perhaps the deceased was estranged from a family member until shortly before their death but wished to provide for them following a reconciliation. Again, the beneficiaries could make provision for this with a Deed of Variation.
A beneficiary may feel that they do not need the money they have been left and they would like to pass it down to their own children to help them get on the property ladder or go to college without running up debts.
Sometimes the Will has not been written in the most tax efficient way and a deed of variation could be used to save inheritance tax due on the estate.
If there is any uncertainty in the Will, a Deed of Variation can be used to clarify the provisions of the Will.
When can’t a Deed of Variation be used?
If a beneficiary is under 18, then they are not able to agree to a variation and in this case it would be necessary to seek a court order to vary the Will.
If a beneficiary is offered compensation for varying their interest in the Will, the variation will not be effective for tax purposes.
If the deceased’s estate includes an interest in a trust then any redirection of the trust assets will not be effective for Inheritance Tax (IHT) purposes.
What are the tax implications?
Normally a variation takes effect from the date it is signed but provided the variation complies with certain requirements, the variation can be treated for Inheritance Tax (IHT) and some Capital Gains Tax (CGT) purposes as if it had been made by the deceased.
This means that the variation is effective from the date of death and the way inheritance tax is calculated takes the variation into account. It is therefore sometimes possible to reduce the inheritance tax payable on an estate by preparing a Deed of Variation, for example by transferring more of the estate to a spouse. If a Deed of Variation changes the inheritance tax payable then HMRC must be notified within 6 months of the variation.
For CGT purposes, the variation is not classed as a disposal and so the new beneficiary will be treated as having received the assets from the deceased at the date of death value. This value will be used for calculating any future gains.
Liability to income tax is only effective from the date of the variation.
Is there a time limit?
A Deed of Variation must be completed within two years of the death. However, even if the estate has been distributed to a beneficiary, that beneficiary can still vary the Will and pass the money on to their chosen beneficiary within the two year period.
Who needs to sign the variation?
Anyone whose inheritance is reduced by the variation must sign the document. Usually the Executors would also sign to confirm that they are agreeable to the changes but if the amount of IHT due is altered by the variation, then the Executors must sign. For more advice and guidance on Inheritance Tax (IHT), click here.
What needs to be included?
The Deed of Variation must state the parts of the Will that are being varied, who the original beneficiaries were and who the new beneficiaries are. In order to be effective for tax purposes, it must also contain specific wording regarding Stamp Duty, Inheritance Tax and Capital Gains Tax.
Is it possible to make more than one variation?
Any gift in the Will can only be varied once so if a beneficiary varies their share of the residue it cannot be varied again but another beneficiary could vary their share by a separate deed. However, it is usually preferably to include all changes in one document to reduce the risk of mistakes which cannot then be rectified.
Can I just give my inheritance to someone else?
You can just give your inheritance away but this would be treated as a gift from you and not from the estate of the deceased. This could have IHT consequences for you as if you were to die within seven years of making the gift, it would be added back into your estate for IHT purposes and you could pay tax on it whereas this would not be the case if you had prepared a Deed of Variation.
Do I need a solicitor?
It is not necessary to use a solicitor to prepare a Deed of Variation and in fact a letter signed by the beneficiary will suffice provided it contains all the relevant information for stamp duty and tax purposes. However, in order to ensure that the correct information is included and that the deed is effective for tax purposes it is highly advisable to seek legal advice. If you vary a Will and get it wrong, you cannot correct this with another variation.
How can Goughs help?
Goughs team of highly trained probate professionals can discuss with you the options available, the advantages and disadvantages of any proposed variation and then prepare the necessary documentation ensuring that it complies with all relevant legislation. If you think this could be of interest to you, please get in touch by filling in the contact form below.