A Deed of variation allows the beneficiaries of a Will to change its contents after the death of the individual concerned.

The Deed of Variation must be effected within two years of the death of the individual and although extremely useful should not be relied upon as part of an individual's estate planning. It may be that the effectiveness is reduced by the Government in the future. However at present they do offer the personal representatives an effective way of changing a Will after death.

All the beneficiaries of the will must be in agreement. If minors are involved this is further complicated as they cannot themselves consent to the changes and an application must be made to the courts for consent to be obtained on their behalf .

The Deed itself must contain a statement that variation has an effect for inheritance tax as if the deceased had made the changes prior to death. The statement must be signed by all parties and where there is an additional tax liability must be signed by the Personal Representatives. The only instance where they can refuse is if there are insufficient assets available to pay the tax.

As an example, where the entire estate passed to the spouse a Deed of Variation could have been used so that part of the estate (below the nil rate band ) passed to the deceased's children in order to reduce the estate of the remaining spouse at death in much the same way as a nil rate band trust would do. The spouse would lose the assets however the beneficiary could support the widow if she had insufficient funds.

A Deed of Variation is not necessarily used to reduce an inheritance tax liability . If the assets are passed to an individual who may have an inheritance tax problem themselves they could elect to have the assets passed to their children instead, thereby reducing their estate. If this is the case the individual who has foregone the legacy is not deemed to have made the gift but instead it is the deceased who is deemed to have made the transfer.

It must be remembered that although the person who disclaims their interest is not the settlor for inheritance tax purposes they are for income tax purposes. For example, where a Deed passes the assets to grandchildren any income generated by the money (over £100) will be treated as their parents' income and taxed at their highest rate. Therefore, foregoing their legacy may lead to further tax consequences which should be considered. If you would like further information on inheritance planning or estate planning please contact us.