Deed of Variation – Alter a Disposition Made by Will

To change an inheritance after a death a Deed of Variation is required. Technically you don’t need a formal deed to change an inheritance however it is common practice to use a deed to ensure enforceability.

A Deed of Variation allows a beneficiary of an estate to change or re-arrange a disposition made by will.

There are several reasons why beneficiaries may wish to vary or redirect an inheritance, such as:

  • To reduce the amount of Inheritance or Capital Gains Tax payable
  • To alter the interests under a will
  • To provide for someone who has been omitted from a will or who has not been given adequate financial provision in a will
  • To resolve any uncertainty or amend a defect in a will

The main effect of a Deed of Variation is that the alteration made by the deed is treated for inheritance tax and potentially also capital gains tax as having been made by the deceased and not by the beneficiary who has given up his entitlement under the will.

In order for a Deed of Variation to be valid it must be signed by everyone affected. A variation cannot be done without the consent of everyone likely to be affected by it; if the variation affects the rights of children or unborn children Court approval is required, a parent’s signature on behalf of a child is not sufficient.

A Deed of Variation can be done at any time but to have retrospective effect for Inheritance Tax or Capital Gains Tax purposes it must meet the conditions below:

  • The  variation must be made within two years of the deceased’s death
  • The right tax declarations must be included in the deed. For a variation to take effect for IHT and/or CGT purposes, it must contain a statement that those signing the variation intend it to take effect for tax purposes. The statement may apply to either IHT or CGT alone or for both taxes. The statement must include the appropriate statutory references
  • There must be no inducements (such as a cash payment) given to any beneficiary to enter into the deed
  • The variation must clearly identify the part(s) of the estate that are being varied, and say who is to benefit from the variation
  • The destination of an asset cannot be varied more than once, although more than one deed is permissible if they deal with different assets

For a Deed of Variation template allowing a beneficiary to redirect their inheritance to another person click here

 

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Share of Joint Property Passing by Survivorship

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There is no obligation to accept an inheritance either under the terms of a Will, an intestacy or by right of survivorship. When an inheritance is not wanted a Deed of Variation can be used to redirect the inheritance to another beneficiary. Thus, a beneficiary who is entitled to part of a deceased person’s estate under a Will, intestacy or by right of survivorship can use a Deed of Variation to redirect the inheritance to another beneficiary of their choice.

Under the doctrine of survivorship where property is owned by two persons as joint tenants if one owner dies then their interest in the property passes to the survivor. Sometimes the surviving joint tenant may not want the property; in these circumstances the surviving joint can use a Deed of Variation to redirect the inheritance.

There are many reasons why beneficiaries may wish to vary or redirect assets held in a deceased person’s estate, one of the main reasons is to save Inheritance Tax.

When an original beneficiary uses a Deed of Variation in order to make some sort of gift and to redirect all or part of an inheritance, the gift, for Tax purposes, will be treated as having been made by the deceased person and not by the original beneficiary.

In certain situations a Deed of Variation may be used to avoid paying Inheritance Tax, provided that it is executed within two years of death.

If the Deed of Variation is executed within two years of death and contains a statement that it is intended that section 62(6) of the Taxation of Chargeable Gains Tax Act 1992 should apply, in most cases the transfer will not constitute a disposal for capital gains tax purposes. It takes effect from the date of death and works as if the distribution of the deceased’s estate had incorporated the variation.

A Deed of Variation is not retrospective for Income Tax purposes. Any income which is payable to the original beneficiary after the death of the deceased, but before execution of the deed of variation, is taxable as the income of that beneficiary.

A Deed of Variation – Share of Joint Property Passing by Survivorship shall be used where the person receiving the inheritance owned property jointly with the deceased, acquired the deceased’s interest in the property by the right of survivorship and wishes to give that interest to some other person.

 

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Contract Variation – Changing Terms of a Contract

For a Variation Agreement template please see: Variation Agreement – Changing Terms of a Contract

Where the parties to an already existing contract later on want to change the terms of the contract they can do so in one of two ways. One option is for the parties to consent to the termination of the original contract and enter into an entirely new one. However, this is expensive and time consuming especially where large and complex commercial contracts are involved. Another option is to create a Variation Agreement to change the existing contract by only varying a certain number of terms, while keeping the majority of original terms in existence.

Thus, a Variation Agreement should be used where the parties to an existing contract want to change one or more provisions of a contract/agreement that has already been signed and is in effect.

Common law allows for a written contract to be changed by subsequent mutual agreement from both parties, whether oral or written. However, it is common in commercial contracts to include a variation clause providing that that any changes made to a contract are ineffective unless made in writing and signed by or on behalf of both parties. This clause is intended to prevent informal or inadvertent oral variations. Thus it is important to check if the original contract has a variation clause because if this is the case then oral variations will generally be ineffective. Furthermore, to ensure that there is no dispute over what has been agreed it is advisable to always attempt to document any variation, as oral variations are hard to prove.

In order for a Variation Agreement to be effective certain elements must be presents. There must be:

  • a valid agreement between the parties (mere notification by one party to the other is not effective); and
  • some form of consideration supporting the agreement.

Consideration could take many forms, for example: mutual abandonment of existing rights; new benefits being granted by each party to the other party; assumption and/or release of obligations. In the absence of consideration, a variation can be effected by deed.

Generally, in order to avoid problems it is always advisable to execute a Variation Agreement as a deed; especially where an agreement amending an earlier contract is all in one party’s favour and/or there appears to be no consideration.

A Variation Agreement should be drafted in accordance with the terms of the underlying contract. Thus if any third-party rights or interests have been granted and/or whether any obligations of the underlying contract are guaranteed by a third party then that third party should also sign the Variation Agreement.

Please note that a Variation Agreement should only be used to change the terms of an existing contract and it should not be used to change the parties to the contract. If you want to change the parties to the contract you should use a Novation Agreement.

To change the terms of an Employment Contract visit: Deed of Variation – Employment Contract.