What is a Deed of Variation (change your inheritance in a Will)?
Share this article...
A deed of Variation allows a beneficiary to change a Will retrospectively.
A deed of variation is a legal document used by the beneficiary of a will to effectively retrospectively change the will under which they have benefited. It allows the beneficiary to divert part or all of their inheritance (from the will) to alternative beneficiaries. The effect of a deed of variation is that the altered gift is deemed to have been made by the deceased, NOT the recipient beneficiary.
Who enters into a Deed of Variation?
The beneficiary who is giving up and entitlement will execute the deed of variation. This might of course be more than one beneficiary – for example where a share of residue is being varied that relates to more than one beneficiary.
Change entitlement to a Will
In short, a deed of variation allows you to retrospectively change the terms of the will of the deceased. You can only change the bit of the will that you were entitled to as a beneficiary.
Can an Executor change the terms of a Will?
Yes, if they are a beneficiary, but strictly speaking they would then be varying the will with their ‘beneficiary hat’ on, not their ‘executor hat’.
Indirectly (and on a very technical point) executors (or more particularly trustees) may have a discretion to execute trusts that arise in the will, and thereby decide who gets what! This is particularly so with discretionary will trusts.
Do I need a Deed of Variation of the Will?
That all depends on your particular circumstances, and why you are changing the terms of your entitlement to the estate of the deceased. It is often for Inheritance Tax (IHT) purposes, and this is where a deed of variation may be required.
Per se, once you have received your inheritance, you can gift to whomever you want whenever you want – just as you would any of you own money that you had accrued from any source. It is not a requirement in law that you execute a deed of variation.
Who can I vary a Will for?
There are no restrictions on this. The ‘replacement beneficiary’ (ie the persons or charities you choose to take instead of you) can be whoever you choose.
Varying a Will might impact your own tax (for better or worse).
Can I vary a fixed Cash Legacy?
Yes, you can vary any element of an estate that you stand to benefit from – including fixed cash legacies.
Can I vary an entitlement to Residuary Estate?
Again yes, you are free to vary your entitlement to any element of a will of which you were set to benefit – including a share of the residuary estate.
How long to do a Deed of Variation?
To claim the benefit of a Deed of Variation you must execute it within 2 years of the death of the testator (the person who made the will).
Why would I want a deed of variation?
The main purpose of a deed of variation is to ensure that the gift is deemed to be made from the estate of the deceased as if there will had been written in the terms of your variation (as a beneficiary) in the first place.
By doing so, it is never deemed to have been part of your own potential estate – which is relevant for your own estate planning purposes (see PETs below).
What is a Potentially Exempt Transfer (PET)?
If you make a gift of an inheritance without a deed of variation, it may be taxable for IHT purposes if you then die yourself within 7 years of the gift. This may have all sorts of IHT implications, like it being taxed twice (ie under the estate of the first person to die, along with the estate of the beneficiary).
PETs invariably ‘fall away’ 7 years after death, and so become forgotten. In that 7 year window, IHT is paid on a reducing sliding scale.
So, in short, one critical benefit of a deed of variation is that it prevents any gift on that you make being a PET – even if you die yourself within 7 years (as it will be deemed to have come from the first estate).
Are there other Tax benefits of a Deed of Variation?
Yes, and again these will perhaps be dependent on your own tax status. For example, if assets pass via your potential estate and out as a lifetime gift (PET) you may trigger things such as capital gains? This is generally avoided with a deed of variation as the assets are deemed to have passed directly from the estate of the testator, to the ‘replacement beneficiary’.
Share this article...
More on this topic