Deed of Variation Will: How to Change a Will After Death
August 28, 2022
When someone passes away, their will or the rules of intestacy determine how their estate is distributed. But what happens if the beneficiaries wish to make changes? A deed of variation offers a legal way to adjust the distribution of assets, add or remove beneficiaries, or even reduce inheritance tax liability. This flexible document allows you to ensure the estate aligns with the current needs of those involved.
You can use a deed of variation to redirect your share of an inheritance to someone else, even if they weren’t included in the original will. However, it’s essential to act within two years of the person's death for the changes to have tax benefits. Whether you're looking to reallocate assets or address unintended consequences, understanding the process is key to making informed decisions.
What Is a Deed of Variation Will?
A deed of variation will is a legal document allowing changes to be made to the terms of a deceased person’s will or, in the absence of a will, to how intestacy rules distribute the estate. It lets you redirect your inheritance, add or remove beneficiaries, or adjust asset allocations. This process must be agreed upon by all affected beneficiaries and carried out correctly to ensure it’s legally binding.
This document is flexible and can include beneficiaries not listed in the original will. However, for it to be valid, everyone giving up part or all of their inheritance must sign it, and if these changes reduce another beneficiary’s share, their consent is required. It's important that the deed is executed within two years of the death if you want the changes to impact inheritance tax (IHT) calculations, as the revised terms are read back into the will for tax purposes.
Using a deed of variation might decrease IHT liability by allowing assets to be redistributed in tax-efficient ways. It’s common to agree on changes before any asset transfers begin, whether or not probate has been granted. A properly drafted deed helps to avoid unintended consequences and ensures the distribution aligns with beneficiaries’ wishes. Professional advice often facilitates understanding the tax, legal, and financial implications of the alterations.
Why Might You Need a Deed of Variation Will?
A deed of variation lets you adjust how an estate is distributed after someone’s death, offering flexibility in situations requiring changes to a will or intestacy outcomes. Below are common reasons for considering its use:
Accommodating Unprovided-for Beneficiaries
You can ensure individuals like unmarried partners, step-relations, close friends, or carers receive a share of the estate, even if the will or intestacy rules exclude them. This is especially valuable in complex family setups.
Providing Fairness for Beneficiaries
Redistribution may address situations where the original division of assets feels inequitable. For example, you may redirect inheritance to a family member with greater financial need.
Reducing Inheritance Tax Liability
By reallocating part of an inheritance to another beneficiary, you can often reduce or eliminate potential inheritance tax obligations on the estate. These changes can maximise tax exemptions or relief while benefiting all involved parties.
Simplifying Estate Resolution
Using a deed of variation can resolve disputes among beneficiaries, bringing clarity to contentious situations and ensuring the estate aligns with everyone’s wishes.
Correcting Oversights in the Will
You can amend errors or omissions in the original will, such as forgotten beneficiaries or undeclared assets, ensuring the deceased’s intentions are truly reflected.
For a deed of variation to be legally binding, all affected parties must agree, sign the document, and meet specific legal requirements.
Legal and Tax Implications
Deeds of variation carry significant consequences for both the legal distribution of an estate and its tax treatment. Understanding these effects ensures you make informed decisions that comply with the law and optimise estate management.
Impact on Inheritance Tax
A deed of variation can significantly reduce inheritance tax (IHT) liability. By redistributing assets to beneficiaries or charities strategically, the estate can benefit from exemptions or a lower tax rate. For instance, skipping a generation or making charitable donations reduces the taxable estate, as any inheritance above £325,000 (Nil Rate Band) and £175,000 (Residence Nil Rate Band) is subject to 40% IHT.
Redirecting assets that qualify for relief, like Agricultural Property Relief (APR) or Business Property Relief (BPR), to non-exempt beneficiaries ensures that the relief isn't wasted. Assets left to exempt beneficiaries, such as spouses, don't use these reliefs. Making absolute gifts or establishing discretionary trusts with the Nil Rate Band further helps manage IHT obligations effectively.
Rules Across the UK
Deed of variation rules apply consistently across England, Wales, Scotland and Northern Ireland, but specifics of law and taxation may vary slightly. You must execute the deed within two years of the deceased's death for its changes to be read back for IHT and CGT purposes. All directly affected parties must agree and sign the deed, and individuals excluded by Forfeiture Rules, such as parties involved in the unlawful death of the deceased, cannot nominate alternative recipients.
If a will or intestacy rules don't reflect the deceased’s wishes, deeds allow you to ensure fair, lawful redistribution of assets while adhering to regional legal frameworks.
How to Create a Deed of Variation Will
Creating a deed of variation allows you to amend the distribution of a deceased person’s estate. Ensuring it's done correctly requires meeting specific legal requirements and avoiding common mistakes. Seeking professional guidance from TrustWise Planning, an expert in estate planning and will writing, can help simplify the process and ensure compliance.
Key Requirements
Satisfy legal conditions to make a deed of variation effective. Firstly, you must create the deed within two years of the deceased’s death. This strict timeline is essential to benefit from tax advantages, including inheritance tax relief.
Ensure agreement among all affected parties. Every person whose share is altered must give written consent and sign the deed. If even one party disagrees, the document cannot proceed.
Use a formal deed format. The document must clearly state the specific changes, identify the assets being varied, include the relevant beneficiaries, and confirm compliance with the required legal framework. Witness signatures are necessary to make the deed legally binding.
Seek professional advice before drafting. Proper guidance helps ensure compliance with complex tax and legal obligations, avoiding pitfalls that could affect the validity of the deed or create unintended consequences.
Common Mistakes to Avoid
Neglecting time constraints invalidates the document. Failing to complete the deed within two years of the death forfeits potential tax benefits and renders the variation ineffective for inheritance and capital gains tax purposes.
Overlooking unanimous agreement can derail the process. If any party affected by the changes doesn't approve or sign the deed, the variation cannot proceed, leading to disputes or delays.
Missing tax implications causes future complications. Redistributing assets without considering tax liabilities could inadvertently increase taxes for beneficiaries. Professional advice minimises such risks.
Failing to document correctly invalidates the variation. Inaccuracies or vague language in the deed could lead to its rejection. Use precise, formal legal drafting and include all required signatures and witnesses.
Avoiding these errors ensures the deed of variation is legally valid and achieves its intended purpose effectively.
Conclusion
A deed of variation offers a valuable opportunity to adjust estate distribution, ensuring fairness, tax efficiency, and alignment with beneficiaries’ wishes. By understanding its legal and tax implications and acting within the required timeframe, you can navigate the process effectively.
Professional advice can be instrumental in avoiding costly mistakes and ensuring the deed meets all legal requirements. With careful planning and agreement among all affected parties, a deed of variation can provide a practical solution to address complex estate matters.
Frequently Asked Questions
Why would someone need a deed of variation?
A deed of variation is useful for addressing unequal asset distribution, reducing inheritance tax liability, including overlooked beneficiaries, resolving disputes, or redirecting inheritance to charities or other individuals.
Is there a time limit for creating a deed of variation?
Yes, a deed of variation must be created within two years of the deceased’s death to impact inheritance tax or capital gains tax calculations.
Do all beneficiaries need to agree to the deed of variation?
Yes, all directly affected beneficiaries must agree and sign the deed for it to be valid and enforceable.
Can a deed of variation override a will?
Yes, a deed of variation can alter the terms of a will if all affected parties agree, allowing changes to beneficiaries and asset distribution.
Does a deed of variation need to be registered with HMRC?
A deed of variation must be sent to HMRC only if it increases inheritance tax liability. Otherwise, registration is unnecessary.
Can I redirect my inheritance to another person?
Yes, you can use a deed of variation to redirect your inheritance to anyone, such as family members, friends, or charities, provided all required parties agree.
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