News & Events
What is a Deed of Variation and When Would It Be Used?
- Posted by: curtislegalwp
- Category: News
When a Will is read, it is possible to alter it when a person has been given an asset (including a trust within the Will) or via the rules of intestacy. If the beneficiary would prefer to change how s/he benefits or redirect who should benefit from this asset, this may be possible through a deed of variation.
One of the main reasons for seeking a deed of variation is related to tax planning. For instance, Mr Brown dies and leaves a valuable piece of art work, say £45,000, to John Brown, his son. As it stands, John is wealthy and already has inheritance tax to worry about. So what John does is execute a deed of variation which redirects the painting to his 30 year-old daughter, Melissa. As long as John has completed all the required formalities the artwork appears as though it was left to Melissa, not John. This helps to solve John’s problem with inheritance tax.
Who may execute a deed of variation?
Anybody who is given an asset through a Will or intestacy may execute a deed of variation as long as s/he has the mental capacity to do so and fits into the right age bracket, which is currently 18 years and older. Any parties who could themselves be beneficiaries to the redirected asset must agree with the dead of variation. For example, Harry in his Will has added a Will trust. This provides a lifelong income for his wife, Deidre. When she dies, the assets that have provided this income should be set aside for their two children Bob and Angela. Deidre decides she doesn’t need the extra income so therefore prefers to ‘vary’ her right and favour her children.
Where a Will’s minor beneficiaries are asked to agree to a deed of variation, if consent is not gained from the Court, it will not be possible for a deed of variation to be executed.
Formalities required for a deed of variation
If a deed of variation is to be of any use when it comes to capital gains tax (CGT) or inheritance tax (IHT) purposes, certain formalities have to be completed.
These are as follows:
- The document has to be in writing and then executed as a deed.
- A deed of variation has to be executed in a time frame that is no longer than two years after the death of the Will’s owner.
- The deed must refer to that section of the Will or intestacy that is being varied and be signed by all those who most likely or may have benefited from the Will’s original provisions.
- The deed must state clearly which inheritances will be affected and what has been changed.
- The deed shouldn’t be for the consideration of money or money’s worth (i.e. in place of money or an asset that may represent money).
- The deed must include a statement that says ‘the variation is to have effect for IHT only, CGT only, or CGT and IHT, as though the deceased had compiled it’. The deed must include an exemption certificate for variations of shares, stocks, or marketable securities. For example, ‘I/We certify that this instrument falls within category M in the schedule to the Stamp Duty (Exempt Instruments) regulations 1987.’
Supposing the property that is being varied has been altered?
If the asset which is the subject of the deed of variation has been altered, it’s still possible to execute a deed of variation. Chris was left £150,000 in his dad’s Will. He did not need the money, so he invested the sum in a life assurance investment bond. Just a few months later, Chris was discussing with his financial adviser his own inheritance tax liability. They told Chris that as he did not need the money he should execute a deed of variation for the £150,000. He can do this despite the fact that the £150,000 had been transferred over to a life assurance investment bond.
The conclusion is that a deed of variation should be considered in financial planning in the long term.