If you inherit money after someone dies, you can choose to vary the effect of their Will or your entitlement if they did not leave a Will. This is done by signing a deed of variation, changing the way in which their estate will be distributed.
We look at the reasons for doing this, how to avoid difficulties, and how to ensure you are making the right decision.
Summary
- What is a deed of variation?
- Why would you make a deed of variation after someone’s death?
- What are the advantages of a deed of variation of a Will?
- Are there disadvantages to a deed of variation of a Will?
- Should I vary someone’s Will after their death?
- How much does a deed of variation cost?
- How can I get a deed of variation of a Will or intestacy?
What Is A Deed Of Variation?
A deed of variation of a Will is a formal legal document by which a beneficiary can give away some or all of their inheritance to someone else. The person signing the deed can only use it to deal with their own share of the estate. If other people will be affected by the deed, they will also need to consent.
If the deceased did not leave a Will, their estate will pass under the Rules of Intestacy. These rules set out who is entitled to inherit in order of preference, starting with a spouse and children. Again, if you are entitled to inherit under these rules, it is open to you to sign a deed of variation so that some or all of your share passes to someone else.
Another option is to disclaim an inheritance, which means you reject it, and your share becomes part of the residual estate. In this case, you would not be able to decide who inherits it. Instead, it would be distributed in accordance with the Will or the Rules of Intestacy.
Why Would You Make A Deed Of Variation After Someone’s Death?
Passing on assets to someone else can be advantageous when it comes to Inheritance Tax. If a beneficiary receives a large sum that they will not use, it will form part of their estate and, in due course, Inheritance Tax will be payable on this when they die.
By signing a deed of variation, they can pass the money directly to their beneficiaries. By way of example, if a grandparent dies leaving money to their child, and that child leaves their estate to their child, the grandchild, Inheritance Tax is likely to be payable twice, firstly when the grandparent dies, then when the parent dies and the money passes to the grandchild.
If the parent were to sign a deed of variation, the money could go directly from the grandparent to the grandchild, leapfrogging the parent. This means that when the parent dies, no Inheritance Tax is payable on the inheritance as the money was never in their possession.
This is generally preferable to the original beneficiary simply gifting the money, as Inheritance Tax would still be payable if the parent were to die within seven years of making the gift.
What Are The Advantages Of A Deed Of Variation Of A Will?
A deed of variation which passes on assets can give you the opportunity to see a loved one enjoying the gift. For example, if you were to inherit money you did not need from a parent, by passing it on to a child, you could help them onto the property ladder.
It can also be a good way of minimising tax liabilities. If a deed of variation is used to give 10% or more of an estate to charity, then the Inheritance Tax payment is reduced from 40% to 36%.
If property is passed on using a deed of variation, there may be Stamp Duty advantages. An expert probate solicitor will be able to discuss the potential benefits with you, and how savings could be made.
You may feel that there is someone who needs the money more than you do, and a deed of variation will allow you to pass some or all of your inheritance to them. For example, if personal circumstances have changed since a Will was made, you can adjust the gift to provide for another person instead of or as well as you.
A final use of a deed of variation can be to clarify ambiguity in a poorly drafted Will. By executing a deed of variation, those involved are stating their acceptance of the position and avoiding the risk of future disputes or legal action.
Are There Disadvantages To A Deed Of Variation Of A Will?
There are some potential disadvantages to a deed of variation, and it is essential that you speak to an expert before making the decision to sign. Possible negative implications include:
- A deed of variation is irrevocable. If you change your mind later, nothing can be done about it
- There is a time limit of two years from the date of death in which to benefit from any tax changes that might arise from a deed of variation
- If you have already given away the asset, you cannot sign a deed of variation
- You cannot use a deed of variation to put assets beyond creditors’ reach or to avoid your own care home fees
- If you want to vary the inheritance of a child or someone without mental capacity, you will need a court order
- A deed of variation cannot be used to change the executors or guardians named in a Will
- All of those affected by a deed of variation need to provide their consent
- Care should be taken when gifting someone a lump sum if they are reliant on means-tested benefits, as they could lose these if they inherit money
- In some cases, there may be the risk of an increased tax liability if a deed of variation is made
Should I Vary Someone’s Will After Their Death?
Whether a deed of variation is the right option is a complex question. There are many aspects to consider, including:
- Your own financial situation and security for the future
- Tax implications, both for yourself and your chosen beneficiary
- The financial position of your chosen beneficiary, for example, whether they will incur financial penalties or lose means-tested benefits
- Whether you have impending liabilities, such as payments owed to creditors or care home fees, that you are obliged to cover yourself
- Whether you are within the time limit for tax purposes
- Whether you might have a change of heart in the future
- If you could face unexpected financial challenges in the future
How Much Does A Deed Of Variation Cost?
The cost of a deed of variation of a Will depends on the complexity of the situation and what due diligence work needs to be carried out. In some cases, other parties will also need to consent to the deed. The tax position can be complicated, and your solicitor will need to explore the potential effects of the deed in order to provide you with comprehensive advice.
How Can I Get A Deed Of Variation Of A Will Or Intestacy?
The first step is to discuss your wishes with an expert probate solicitor. They will be able to go through the risks with you and outline any other options. For example, it might be preferable to gift only part of your inheritance, or to put funds into a trust if your chosen beneficiaries are still relatively young.
Once a decision is made, your solicitor will be able to draft the deed of variation, so that the subsequent distribution of the estate is dealt with accordingly.
Contact Our Probate Solicitors
If you have inherited money, and you are considering changing the Will or your right to inherit under the Rules of Intestacy, contact us today, and we will be happy to advise you.
For information on dealing with Wills and inheritance, see our Wills, trusts and probate page.
To speak to one of our expert probate solicitors, ring us on 0300 303 2071, email us at info@witansolicitors.co.ukor fill in our contact form. We have offices in Birmingham, Northampton, London and Wellingborough.
