What is a Deed of Variation (and why would you need one)?

Beneficiaries sometimes ask us if they must follow the deceased’s instructions in a Will. They also ask if they can change the distribution of the estate when the deceased died without a Will. If beneficiaries wish to change the distribution of an estate, whether there is a Will or not, they are able to do this using a Deed of Variation.

What is a Deed of Variation?

A Deed of Variation is a legal document which beneficiaries can use to alter the distribution of the share of the estate to which they are entitled. That means this mechanism can be used by beneficiaries to alter where their share of the estate ends up.

There are certain rules which apply when drawing up a Deed of Variations to ensure it is valid. The rules are:

  • It must be drawn up within two years of the death;
  • It must clearly show which parts to which it relates;
  • The Deed of Variation must identify the individuals or organisations who will benefit;
  • It must be signed by the beneficiaries who are involved in the redistribution;
  • It must state that the variation is to be effective for Inheritance Tax (IHT) and Capital Gains Tax (CGT) purposes; and
  • Finally, the Deed of Variation becomes effective from the date of death.

The Deed of Variation must include all these elements, otherwise, it will be invalid.

Why would you use a Deed of Variation?

There are a variety of reasons beneficiaries might employ a Deed of Variation. For instance, the redistribution might be to benefit from Inheritance Tax exemptions. Alternatively, it could be used to alter the shares enjoyed by beneficiaries. It might also be used to include someone who has been excluded from sharing in the estate in the Will.

Limiting exposure to Inheritance Tax (IHT)

Beneficiaries can take steps to limit the exposure of the estate to IHT. For instance, if the estate is slightly over the threshold of £325,000, rather than paying 40% in IHT on the balance over that level, they can agree to donate that balance to charity. That means this eliminates any IHT liability. In addition, in very large estates, it can pay dividends to donate at least 10% of the estate to charity. As a result of that, the IHT rate is reduced from 40% to 36%. This can mean a significant saving in a very large estate.

Alternatively, a beneficiary may decide to redirect all or part of their share in the estate to their children to reduce the amount of their estate when they die. This has the effect of reducing the exposure of the beneficiary’s estate to IHT.

Altering the distribution amounts

The beneficiaries might decide to change the amounts being distributed to them. For instance, they may decide that one or more of their number should receive more of the estate than provided for in the Will.

Beneficiaries can also decide to even up the distribution of the estate if the deceased instructed the estate to be divided unevenly.

Including someone not included in the Will

The beneficiaries might decide to include someone else in the distribution of the estate. This might be a stepchild or a close friend of the deceased who would not otherwise share in the estate.

Can beneficiaries use a Deed of Variation if there is no Will?

Using a Deed of Variation is not restricted to estates where there is a Will. A beneficiary in an intestate estate can agree to redistribute their share in the estate just as easily as a beneficiary under a Will.

Experienced estate planning solicitors in Rutherglen and Glasgow

If you wish to discuss redistributing an estate or entering into a Deed of Variation, we have very experienced solicitors in our firm who can help and guide you. We deal with estate planning, Wills, Powers of Attorney and Estates for many clients every year. We will explain the process and who you can benefit from this process. Please simply contact us to arrange an appointment.