Changing the Benefits under a Will with Deeds of Variation

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Changing the Benefits under a Will with Deeds of Variation

Changing the Benefits under a Will with Deeds of Variation

We are often asked by beneficiaries as to whether it is possible to change the benefits they receive from a Will. What can they do?

A Deed of Variation, also known as Deeds of Family Arrangement, are commonly used by the beneficiaries of an estate to make changes to their entitlement, for example to:

  • pass benefits to the next generation or
  • make provision for someone not provided for or make additional provision for an existing beneficiary, to include settling a claim against the Estate by a Dependant of the Deceased
  • make the Will / Estate more tax efficient

Changes can be made by a beneficiary to their entitlement either under the deceased’s Will or Intestacy (if they died without leaving a valid Will) after the person has died. Subject to certain requirements a Deed of Variation is “read back” into the Will (or Intestacy) for tax purposes and treated as though made by the deceased.

A Deed of Variation cannot be used to vary the entitlement of any other beneficiaries without their agreement nor can it be used to change the executors or guardians named in the Will. If minor children or unborn children are likely to be impacted then a court order will be required. It's possible to complete a Deed of Variation either before or after the Grant of Probate or Letters of Administration have been obtained but it must be finalised within two years of the date of the deceased’s death in order to be “read back” for tax purposes.

The following are two simple examples of how a Deed of Variation can be used. Depending upon the size of the Estate and issues involved, a Deed of Variation can be as simple or as complex as required.

Example One

June dies leaving her entire estate under her Will to her two children Sarah and Ben in equal shares. The Estate is subject to tax.

Sarah has an adult daughter, Emma, and intends to make a gift of £250,000 from her inheritance to help Emma buy her first home.

If, upon receipt of the inheritance, Sarah gifts £250,000 to Emma then, for Inheritance Tax purposes, this will be considered a Potentially Exempt Transfer by Sarah and if Sarah dies within 7 years of making the gift it would be included in Sarah’s estate for the purposes of calculating Inheritance Tax.

If however Sarah completes a Deed of Variation and redirects £250,000 from her share of June’s estate to Emma then the gift will treated as being part of the distribution of Emma’s estate and cannot be subject to any further tax when Sarah dies.

Example Two

Arthur died leaving a substantial estate but no valid Will. At the time of his death Arthur had several properties and significant assets and had been living with his partner Sheila for several years but they were not married. Arthur had a son, John, from an earlier marriage and under the Laws of Intestacy John is entitled to Arthur’s entire estate. Shortly before Arthur died he told John that he wanted to leave a sum of money to Sheila. A further issue being that Sheila, as Arthur’s partner, has a claim against the estate under the Inheritance (Provision for Family and Dependants) Act.

In order to honour Arthur’s wishes and to avoid a claim against the estate, John completes a Deed of Variation making reasonable financial provision for Sheila. By making this provision John is able to prevent a claim against the estate, plus by including the gift to Sheila in a Deed of Variation then, for tax purposes, the provision is not treated as a gift by John but as though it were an inheritance from Arthur.

Get in touch

Each individual and their needs are different and if you would like some advice on how a Deed of Variation can be used, or if you require assistance on Estate Planning matters generally, then please contact a member of the Private Client Team at [email protected] or call Daniel Wilson on 0345 074 2452