When a person dies, it is possible for the beneficiaries of the estate to make changes to the distribution of the estate. These changes are made by a Deed of Variation. A Deed of Variation can be used where the deceased left a Will, but also where they died intestate.
Normally, the Will or Intestacy Rules prescribe how the deceased’s estate is to be distributed, however there are instances where the beneficiaries may want to make changes to the distribution – for example including someone who was excluded from the deceased’s Will, or to include someone who is not entitled to benefit under the Intestacy Rules. Deeds of Variation can also be used to reduce Tax.
HMRC have set out the formalities surrounding Deeds of Variation. Any changes made must take effect within two years from the date of death but can be prepared before or after a Grant of Probate is obtained.
Each beneficiary must agree to the proposed changes. For example, where the deceased left their estate to be divided equally between three children but the deceased had four, the three children named in the Will can agree to vary their inheritance to include the fourth child. If the estate was worth £400,000 each child would receive £100,000. However, if only two of the named children agreed to the variation, then the named child who does not agree would receive £133,333 and the two named children and fourth child would receive £88,889 each. This is because the two named children can only alter the share of the estate they are entitled to.
BBS can help you draw up a Deed of Variation and prepare any relevant HMRC forms. We can also advise you on how a Deed of Variation can help to make best use of Inheritance Tax and Capital Gains Tax relief.