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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