Making a post death deed of variation

Making a post death deed of variation

If you benefit from a deceased person’s estate under a will or intestacy, or as the surviving owner of a joint asset, you may wish to redirect the inheritance to others. There are considerable tax advantages if this type of gift is made by a qualifying deed of variation.

Can a will be changed after death?

Any beneficiary who inherits under someone’s will or the intestacy rules (if the deceased person dies without a will) can vary their inheritance. The document which deals with this is known as a deed of variation and must be signed within two years of the date of death in order to be valid. A variation can deal with some or all of the beneficiary’s inheritance (so they can vary all of it or perhaps vary some of the inheritance and keep the rest), and the inheritance which is varied can pass to other individuals outright, or into trust. If assets are varied into a trust, this can often be part of an exercise in wider estate planning as the trust assets are then outside of the estate of any individual person. This can be particularly useful for the beneficiary who carries out the variation, as they can still benefit from the trust in a way that keeps the trust assets out of their estate for inheritance tax purposes when that beneficiary dies.

What is a deed of variation?

A deed of variation is an under-used but very inheritance tax effective measure. It is used when a beneficiary inherits from an estate, but wishes to remove that inheritance from their own estate to avoid a future inheritance tax liability on their own death. If a deed of variation is used to create a trust, the beneficiary will potentially still be able to benefit from the inheritance going forward.

What are the advantages of a deed of variation?

A deed of variation which satisfies the relevant conditions will not trigger a tax liability for the original beneficiary. Instead, for all inheritance tax purposes (and in important capital gains tax respects) the gift effected by the deed will be treated as if made by the deceased if it contains the appropriate tax statement.

This enables tax exemptions to be claimed retrospectively, and can prevent assets from forming part of the beneficiary’s chargeable estate.

Deeds of variation also provide unique opportunities for trust creation without the usual limitations imposed by ‘reservation of benefit’ rules or ‘pre-owned assets’ income tax. So they should definitely be considered by those who have received an inheritance from which they may wish to benefit, but who also want to reduce their estate’s tax exposure.

Can deeds of variation be used on property?

Deeds of variation can be used for any assets which are inherited by a beneficiary. Very often, the assets in an estate are sold as part of the administration process but if the beneficiary wants to keep a specific asset such as a property, and transfer it into trust through a variation, then the beneficiary is free to structure the variation in this way.

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