There are a number of circumstances where the beneficiary of a Will may not actually want to receive their inheritance. They may want to make provision for someone who has been excluded from the Will or give another person a larger share if the Will created an unequal division of assets. They might wish to give money to charity, change the Will so it is more tax efficient, or even put right mistakes, for example, in a poorly drafted homemade Will.
In order to make changes after the death of the testator, a Deed of Variation will need to be drawn up. To be able to gain any tax advantages from the variation, this will need to be executed within 2 years of the date of death. This can be before or after the Grant of Probate or Letters of Administration has been obtained. The Deed should be signed by any beneficiaries who are affected by the change, and it is best practice for the personal representatives to sign also. In some circumstances, the PRs must sign.
Any adult beneficiary can execute a Deed of Variation, provided they have capacity to do so, and if any beneficiary is to receive less, they consent to this and sign the Deed. A minor under the age of 18 years cannot agree to a Deed of Variation, and neither can anyone do this on their behalf.
Some examples where executing a Deed of Variation may reduce the inheritance tax payable include:
• Varying the dispositions of a Will to leave money to charity. Charites are exempt-beneficiaries for inheritance tax and so anything passing to charity does not attract an inheritance tax charge. If a charity or charities are left at least 10% of the net estate then the estate can qualify for a reduced rate of inheritance tax of 36%, rather than 40%.
• If a spouse has died intestate, with children, the surviving wife, husband or civil partner will receive assets up to £250,000, half of the remainder and the other half will go to the children. If the amount not passing to the surviving spouse is over £325,000 then this will attract inheritance tax. A Deed can be signed to divert the estate all to the surviving spouse instead, provided the children agree, and then spouse exemption will apply, and the transferable nil-rate band can be utilised on the second death. Even if there is not inheritance tax payable on the first death, any funds not going to a surviving spouse will reduce the amount of nil-rate band which can be carried forward to the second death.
However, a word of caution must be mentioned where people attempt to give away their inheritance in order to continue to claim means tested benefits. In such circumstances, this will be classed as a deliberate deprivation of assets for those benefits.