What is it?
A deed of variation, sometimes referred to as a ‘deed of family agreement’, is a document used to re-direct inheritance in someone’s will up to two years after they die.
Deeds of variation of intestacy are much the same, except that the deceased didn’t write up a last will before they died.
They are in the process of being reviewed, as announced in the most recent Budget statement. The Government believes that as it helps save on Inheritance Tax, it is a method of tax avoidance. However, there is a lot more to deeds of variation, like securing finance for people left out of the will or corrections that weren't addressed before the deceased passed away, than simply cutting the tax bill.
Who can do it?
Many cases involve inter-generational amendments but almost anyone can benefit from deeds of variation.
However, you will encounter a few more problems if any of the beneficiaries are under 18 or mentally incapacitated. Court approval will be required, which can bump up the costs of the variation process by quite some way.
You can see if you meet the requirements with the HMRC Instrument of Variation checklist.
Reasons for changing a will
One of the most common reasons for changing a will is if the deceased has passed on the inheritance to their own children when younger generations would benefit more from the money. The named beneficiary could re-direct the cash to a younger family member, say someone in their early 20s, who is likely to need it more.
It could simply be a way of resolving any indiscretions in the will. For instance, if money is left to the deceased’s grandchildren but another one has been born since the will was updated, a deed of variation is an ideal way to fix it.
An unmarried partner could ask for the money to be re-directed, especially if the deceased didn’t write up a will and the partner isn’t legally entitled to the money through marriage.
It’s also an effective way of saving on Inheritance Tax. If you leave your share of an estate to your children, the benefit which you were due to receive doesn’t form part of your estate for Inheritance Tax purposes. Even if you die within seven years of the transfer to your children, it wouldn’t count as a gift so you wouldn't have to pay Inheritance Tax.
How to do it
First, go and see a solicitor. As with making a will, a document as complex as this is always best overseen by a legal professional.
They will draw up the deed based on your requirements so that all you have to do is sign. Your deed must be in writing and signed by everyone who wishes to vary their entitlement under the will.
Just make sure that you do it before the two years is up. Even if you try to make the deed the day after, it won’t be accepted. You could still pass on the money to younger generations, but you won’t get the tax relief.
Finally, if the variation means that more Inheritance Tax needs to be paid, you need to send a copy of the deed to HMRC within six months of making it.