Making a Will is one of the most important things you will do in your lifetime. It caters for far more than just who will benefit from your belongings (your estate).
What is a Deed of Variation?
A Deed of Variation, is also known as an instrument of variation or family arrangement. It is a document that estate administrators or executors can prepare and sign to alter the distribution of an estate, mostly to mitigate tax.
Altering Intestacy with a Deed of Variation
If you died intestate (without a will) your estate has to be distributed under the Rules of Intestacy. According to the Rules of Intestacy; if there is a surviving married or civil partner and the person who died has children, then the estate will be divided between the children and the surviving partner. This could mean that your spouse would be restricted in the amount of inheritance that they could receive. Often this causes hardship so a Deed of Variation of Intestacy could be created to alter the amount the spouse would receive.
Unmarried partners do not have the right to inherit under the Rules of Intestacy. Therefore, your partner may not have any right to your estate, so similarly one could be created by beneficiaries to ensure that your partner was provided for.
Some times a badly written or out of date Last Will and Testament may accidentally exclude a child. A deed of variation can rectify it without expensive Court action or needless tax. The deed of variation effectively changes the Last Will and Testament or the effects of the intestacy and sets out the new terms of the Will or varies the standard rules of intestacy.
The deed of variation can only be made if all parties who would suffer loss have agreed to it without compensation. The need for agreement leads to complications where children are involved as beneficiaries.
ONE – WEALTHY BENEFICIARIES IN OWN RIGHT
The initial beneficiaries might already be well off and don’t need the inherited sum. Their children or grandchildren however may be struggling with school or University fees, and would prefer the inheritance go directly to them. If the children inherit directly, then pass it on, there is a potential Inheritance Tax liability. A Deed of Variation can redirect the gift as if it had been left to another beneficiary originally.
TWO – BENEFICIARIES WITH MARITAL PROBLEMS
If a marriage is in peril, a spouse may look to divorce if they saw an inherited sum coming in, of which they would be legally entitled to half of in such a case. A deed of Variation can see the inherited sum diverted into a trust for the benefit of a child or grandchild, locking the spouse out of the inheritance. The original beneficiary can loan money from the trust, so they have use of the inherited sum, but it is deemed a loan, and not an asset.
THREE – INTESTACY (no will in place)
If you died Intestate (without a will) your estate has to be distributed under the Rules of Intestacy. According to the Rules of Intestacy; if there is a surviving married or civil partner and the person who died has children, then the estate will be divided between the children and the surviving partner. This could mean that your spouse would be restricted in the amount of inheritance that they could receive. Often this causes hardship so a Deed of Variation of Intestacy could be created to alter the amount the spouse would receive. It also may needlessly use a proportion of the Transferable Nil Rate band of Inheritance Tax. Thus potentially creating a larger IHT bill on the second death.
FOUR – BENEFICIARIES WHO ARE FINANCIALLY IRRESPONSIBLE
If the beneficiary or his family are particularly bad with money, or have problems with Gambling, drugs or alcohol, you can use a deed of variation to create a trust, as with reason 2 above. The Trust can be used to purchase property or assets of another nature, but it will belong to the trust, and not to the beneficiary. The trust will be managed by trustees, who would not have the same issues.
The Trust fund is in place to preserve assets, and pass them to bloodline relatives down the line, rather than see them wasted.
For more information on Deed of Variation please contact us on 01834 815062 or click here to email us.
A will is a legal document where a person, names one or more persons to manage his or her affairs and estate. In “olden” times, a Will referred to property, and a Testament referred to personal property, hence the term now used “Last Will and Testament”.
If someone dies without making a will, they are said to have died “intestate”. If this happens, the law sets out who should deal with the deceased’s affairs and who should inherit their estate (property, personal possessions and money).
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