Legal News | 12.05.21

To vary or not to vary – that is the question

When somebody dies, their estate is distributed to beneficiaries according either to the terms set out in their Will, or under the rules of Intestacy if the deceased did not leave a valid Will.

There may be circumstances when a beneficiary wants to pass their inheritance on to someone else. Why?

• a beneficiary might want to provide for someone who was not included in the Will, such as pass assets on to children or grandchildren; or

• A beneficiary may wish to redirect some of their inheritance to other named beneficiaries (perhaps if another beneficiary is in a less favourable financial position).

A Deed of Variation has several advantages:

• The original beneficiary is able to choose who will receive the redirected inheritance.

• Provided certain conditions are met, the redirected gift can be ‘written back’ to the deceased’s estate for capital gains tax and inheritance tax purposes, i.e. treated as if it was initially gifted by the deceased. This allows the original beneficiary to avoid any personal IHT or CGT implications (but note that a Deed of Variation is not read back for income tax purposes and so specialist advice should be sought).

• A Deed of Variation could also be used to take advantage of exemptions or reliefs available to the deceased’s estate. This could result in the estate paying less IHT. For example, if a property is redirected to the deceased’s children, the Residence Nil Rate Band could become available and reduce the amount of IHT due or assets could be redirected so that sufficient of the deceased’s estate is left to charity to enable a lower (36%) rate of IHT to apply.

If you would like to discuss making a Deed of Variation, please get in touch with your usual contact at Wansbroughs or email the Private Client team at wealth@wansbroughs.com.