A deed of variation can be used to alter the people who are due to inherit an estate or assets from a will, or to help the beneficiaries of a will manage the estate more efficiently.
A deed of variation can be made by the people who are going to inherit either through a will or through the laws of intestacy.
If there is no will, the deed of variation can be made by those who will inherit through the laws of intestacy, but it must be agreed and signed by everyone who would inherit through these laws.
Often, a deed of variation is used not to change the wishes of the deceased, but to better arrange the will in order to reduce the amount of inheritance tax that needs to be paid, and to make sure any assets go to the correct person or people.
For example, if a will was written a long time before death, the instructions within the will may no longer reflect how the deceased felt when they passed away. Perhaps a new marriage took place after the initial will was written, and the will was never updated to reflect this change of circumstances.
If one beneficiary of the will has a greater need for the money from the estate than the others, they may try to make a claim for more money. A deed of variation will ensure this is a formal change of instruction that would enable that person to receive more than may have been initially stated.
There are ways of reducing the inheritance tax bill associated with a will, but understandably, these are often not considered when a will is written.
Inheritance tax is paid based on a threshold that for 2020 and 2021 stands at £325,000. If the value of assets exceeds that amount, inheritance tax of 40% will need to be paid on the amount that exceeds £325,000. Any amount that exceeds the inheritance tax threshold is known as the net estate.
Including a Donation to Charity
When an estate has a net estate worth (because it is worth more than the inheritance threshold of £325,000), by donating 10% of the net estate to charity, the amount of inheritance tax that must be paid on the net estate will be reduced from 40% to 36%.
By including a donation to charity within a will, the inheritance tax can therefore be reduced and by reducing the inheritance tax, beneficiaries of a will can sometimes receive a greater sum of money.
Transfering to a Spouse
When inheritance is left to a spouse or civil partner no inheritance tax will apply. Instead, the inheritance tax allowance of the deceased moves across to the living spouse and the living spouse’s inheritance tax threshold increased from £325,000 to £650,000. When a married couple has children, it is important to consider this allowance if the surviving partner is likely to continue to provide for their children in the future.
When is the right time to make a deed of variation?
A deed of variation can be made before applying for probate, after applying for probate, or once the estate has been distributed between benefactors of the will. If the deed of variation is intended to reduce the amount of inheritance tax that needs to be paid, you must make the deed within two years of the death.
If you are considering writing a will or are in need of a deed of variation, please get in touch with us to discuss your options.