Estate Planning with Deeds of Variation

One of the most important tools in the estate planning armoury are Deeds of Variation, documents which allow a beneficiary of an estate to, in effect, give up their inheritance and redirect it to a third party.

Why would someone not want their inheritance?!

There can be many reasons why someone may not want to keep some, or all, of an inheritance following someone’s death. Some examples:

• Tax or succession planning (allowing the inheritance to be redirected to a grandchild, for example);
• Providing for individuals who weren’t included in the deceased’s Will;
• Equalising the distribution of assets where there have been lifetime gifts to a beneficiary;
• Giving to a charity, perhaps one that assisted the deceased during their lifetime; or
• Redirected an inheritance under the intestacy rules.

How is the entitlement varied?

It is possible for a beneficiary to simply disclaim their entitlement, in other words to not take any share, but this would mean there is no control over who receives the entitlement instead.

Accordingly, beneficiaries typically sign a Deed of Variation, which sets out not just that they do not wish to inherit, but also sets out who should inherit instead. This makes a Deed of Variation an incredibly useful tool in re-directing estates and ensuring assets are held in the most beneficial structure.

Are the Any Formalities?

There are, as you would expect, a number of formalities to be followed, particular when it comes to tax planning. The most important point, however, is that any Deed of Variation must be executed with two years of the person’s death, or it will fail from a tax perspective.

Any other Considerations?

It is important to consider the tax or other benefits as well as the implications for both individuals, and the estate as a whole. When used properly Deeds of Variation can be hugely beneficial from an inheritance tax or capital gains tax perspective. However, it is also easy to inadvertently create undesired consequences.

In addition, anyone who might be adversely affected by the changes would need to agree to the variation and be capable of agreeing; for example, a child would not be capable of agreeing.

Finally, as with any gift, the starting point must always be to ensure that the beneficiary varying their entitlement is actually in a position where they can, indeed, give away their inheritance without causing themselves any difficulties!

Summary

Deeds of Variation are incredibly useful, but as you will see these issues can be quite complex, and it is wise to seek professional advice if considering a deed of variation. Please therefore do not hesitate to contact our Wills, Trusts and Estates team if you would like to discuss the use of such a Deed in more detail.