Deed of Variation

A Deed of Variation sometimes known as a Deed of Family Arrangement enables beneficiaries of a deceased's estate to alter the distribution of that estate, or relinquish a bequest from an estate. Thus changing the deceased Will.
There are a number of reasons that you might want to alter the way money or property is allocated from a deceased estate but probably the most common reason to make an alteration is to achieve a future Inheritance Tax saving.
Many married couples either do not have a will or leave everything to each other. This is a perfectly valid thing to do but offers little protection from care costs assessment.
Changing a will after a persons death to try and avoid care cost assessment will normally be seen by local authorities as an attempt to deliberately deprive them of assets they could have used to fund long term care costs.
In most scenarios, where there are no other reasons for making the change, a deed of variation would be ineffectual if a requirement for long term care were to arise in the near term.
By using a Deed of Variation the deceased personal representative or executor could change the way monies or property are allocated to either set up a nil rate band trust or allocate money to another family member, individual or trust.
The Deed of Variation must be effected within two years of the death of the individual. Although extremely useful it should not be relied upon as part of an individuals estate planning. However, at present they do offer the personal representatives or executor an effective way of changing a will after death.

In order to establish a Deed of Variation all the beneficiaries of the will must be in agreement. If minors are involved this is further complicated as they cannot themselves consent to the changes and an application must be made to the courts for consent to be obtained on their behalf.
A Deed of Variation can be used to reduce an inheritance tax liability. If the assets are passed to an individual who may have an inheritance tax problem themselves they could elect to have the assets passed to their children instead, thereby reducing their estate. If this is the case the individual who has foregone the legacy is not deemed to have made the gift but instead it is the deceased who is deemed to have made the transfer.
Where you are the recipient of a gift or legacy and you wish to divert the gift to a or multiple third parties and deed of variation can be used, an alternative is to accept the gift and then re gift it to whom ever you wish. If you take this approach you do run the risk of your estate having to pay inheritance tax on the gift if you were to die within 7 years. One strategy that can be used if you do take this approach is to take out a decreasing term insurance policy to cover the Gift Inter Vivos. This is a kind of insurance policy where the benefit if you should die within 7 years will be directly in line with the inheritance tax due.
If you are the beneficiary of a will within the last two years and want to explore how we can help you to use a Deed of Variation to change the way the deceased estate was allocated please give us a call on 020 7611 4848 to arrange a consultation.