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How beneficiaries can vary the outcome of a will.

When to consider

A deed of variation (also known as a deed of family arrangement) may be appropriate to consider either when there is a will or when someone dies intestate (without a will).

If the beneficiaries (or at least one beneficiary) wants to redirect a bequest in the will (or an entitlement under the intestacy laws) either in part or in whole to another person or people then that beneficiary (or beneficiaries) can complete a deed of variation. The deed of variation can only affect the bequests which relate to the beneficiaries which are a party to the deed of variation.

The following is a list of some of the usual reasons why a deed of variation may be used:

  • to save tax. Sometimes the last will of the deceased was written many years previously and the current tax regime may be quite different from when that will was written. Similarly the deceased may not have considered tax saving options which could have been made at the time of writing the will
  • the last will may have unintentionally excluded someone who the beneficiaries believe should have been included. Similarly someone may have been excluded and the beneficiaries consider that a legitimate claim could be made and a deed of variation may avoid costly court claims
  • the will may have a defect in some way or was wrongly worded and the beneficiaries consider the intention of the deceased may have been different from the legal wording in the will
  • financial imbalances may have occurred between the date the last will was written and the date of death which a deed of variation can rectify.

An important matter to consider in relation to jointly held property is whether there is a ‘joint tenancy’ or a ‘tenancy in common’.

Joint tenancy is a type of ownership where each person owns the whole of the property. As a joint tenant, you cannot leave part of the property to someone else in a will. If a joint tenant dies, the property automatically passes to the other owner(s). A deed of variation would not be appropriate to try to vary an interest held as a joint tenant.

Tenancy in common (or ‘joint owners’ in Scotland) is when different people own a separate share of the property. Tenants in common can leave their share in the property to whoever they want to in their will. This bequest can be varied using a deed of variation.

 Legal effect

The effect of a deed of variation is as if the terms of the will had been re-written and the bequests as at the date of death change in accordance with the deed of variation. Similarly if there is no will, the redirection will also be treated as having been made at the date of death of the deceased.

Inheritance tax is calculated taking account of the variation. For capital gains tax purposes the beneficiaries, after taking account of the variation, are treated as acquiring the assets with a value as at the date of death and not their value when distributed to the beneficiaries.

How to prepare

The following conditions need to be complied with for a valid deed of variation:

  1. the variation must be in writing
  2. the document is normally a formal deed, but does not have to be
  3. the variation must be made within two years of the date of death
  4. the beneficiary redirecting the bequest must sign the document
  5. the document must state which part of the estate is being varied and who is to benefit from the variation
  6. if the deed of variation is to be effective for inheritance tax and capital gains tax then it should refer to section 142 of the Inheritance Tax Act 1984 and section 62 of the Taxation of Chargeable Gains Act 1992 as amended by Finance Act 2002, section 120 and/or section 52
  7. only adult (over 18 years of age) beneficiaries can vary their entitlement to a deceased person’s estate
  8. if the variations result in further inheritance tax being payable, the personal representatives must sign the deed of variation as well as the beneficiaries.

Where to send them or submit them when complete

The deed of variation should be sent to the personal representatives (known as an executor if there is a will and as an administrator if there is no will).

If the deed of variation results in additional inheritance tax payable then the personal representative must notify HMRC within six months of the date of the variation and send them a copy of the document.

How to prepare a deed

Signing as a deed requires those very words and the signature of the person or persons making the deed. The signature should be on the document in the space provided. The name of the signatory would normally be printed or otherwise make clear who has signed the document. The signature should be in ink or some other indelible medium.

The signature should be witnessed (which means the witness’s name and address should be written and the witness’s signature near this information).

The witness is not a party to the document. The purpose of the witness is to verify at a later date, if necessary, that the person who signed was the person named. The witness should see that person sign the document and then sign the document as the witness. Printing the witness’s name and address is to facilitate finding that witness at a later date if necessary.

For a deed to be validly executed it needs to be ‘delivered’. This is usually achieved by having clear wording in the document setting out that the deed will be delivered on the date appearing at the head of the document.

If the deed contains wording that it is executed and delivered on the date appearing at the head of the document, then a date should be inserted that is on or after the date that the last signatory signed. If the deed does not contain such wording, the absence of a date will not necessarily affect its validity, which usually takes effect from the date of delivery.

Article from ACCA In Practice