We need to make something abundantly clear at the very beginning: it is not possible to change someone’s Will after they have died. A Will is made by the testator and sets down their intentions for what should happen after their death. As they have died, it is no longer possible for them to make any changes.
However, even though changes cannot be made to the Will, it is possible to redirect the distribution of the estate. Those who are entitled to inherit the estate are called beneficiaries. If beneficiaries decide they would like to redirect their share in the estate, they are perfectly entitled to do so. In order to do that, the beneficiaries need to enter into a Deed of Variation. The Deed of Variation will change the destination of elements of the estate through either redistribution to existing beneficiaries or to include other individuals who were not originally included in the Will.
What is the practical effect of a Deed of Variation?
When a beneficiary decides to redirect all or part of their estate to someone else, the only way to do this is to draw up a Deed of Variation. As mentioned above, the Deed of Variation does not change any of the terms of the Will. It does, however, change the final destination of the beneficiaries share in the estate.
We should also point out that a Deed of Variation can be used to redirect elements of the estate whether the deceased left a Will. That means beneficiaries could use a Deed of Variation if the deceased died intestate.
Beneficiaries can act alone or in conjunction with other beneficiaries to redirect all or part of the estate.
In order for a Deed of Variation to be valid, it must contain certain elements. These are:
- It must be drawn up and signed within 2 years of the death of the deceased;
- It must be clear on the part of the estate to which it relates;
- The people who are to benefit from the estate must be clearly identified;
- All of the current beneficiaries who are taking part in the redirection must sign;
- It must contain a statement that the Deed of Variation is to be effective for Inheritance Tax (IHT) and for Capital Gains Tax (CGT) purposes; and
- Finally, it must state that it is effective from the date of the deceased’s death.
If there is any omission of any of the above elements, the Deed of Variation will be invalid.
When would you use a Deed of Variation?
There are many reasons why beneficiaries might enter into a Deed of Variation. Perhaps the most obvious one is to avoid Inheritance Tax. An example of this could be deciding to contribute part of the estate to charity. This mechanism may be used where the estate is over the IHT threshold of £325,000 to either eliminate or reduce the IHT liability. Indeed, if 10% of more of the estate is donated to charity, the IHT rate is reduced from 40% to 36%. This can amount to a significant saving in IHT in very large estates.
Alternatively, beneficiaries might decide to enter into a Deed of Variation to leave part of the estate to their children. If we ignore the impact of Legal Rights, if one spouse were to leave their entire estate to the other, there would be no impact for Inheritance Tax purposes – there is no IHT on any transfers between spouses. However, all that might do is to stoke up trouble when the second spouse dies. So, there is the possibility of creating a Deed of Variation which redirects part of the estate – perhaps up to the Inheritance Tax threshold to children thus using the deceased’s spouse’s allowance. This would mean that that amount has been passed down free of tax and eliminated from inclusion in the estate of the surviving spouse on their eventual death.
Another example is where beneficiaries decide to include a stepchild who was omitted from the Will in the distribution of the estate. It is also possible to use a Deed of Variation to even up an uneven distribution of the estate that has been made in the Will.
What can I do if I need advice about a Deed of Variation?
As with many areas of law, dealing with an estate and changes to the distribution are not straight forward and need to be dealt with properly. If you are a beneficiary and are considering whether to redirect your share in the estate to someone else and need advice about how to do this, please contact us. Our solicitors have years of practical experience dealing with estates and are well placed to advise you on your options.