Using a deed of variation to alter distribution of an estate

A Deed of Variation (sometimes called a Deed of Family Arrangement) enables the beneficiaries of a deceased person’s estate to alter the distribution of the estate.

A Deed of Variation (DOV) can be used by one beneficiary to redirect their share of the estate or by all of the beneficiaries jointly to alter the distribution of the entire estate.

The DOV must be completed within two years of the date of death and all of the beneficiaries who wish to vary the distribution of their gifts must be over the age of eighteen years and of sound mind.

If any of the beneficiaries are aged under the age of eighteen years it may still be possible to complete a DOV but an application will have to be made to the court for consent.

When a DOV has been entered into it is treated as though the deceased person made the gift in their Will for Inheritance Tax and Capital Gains Tax purposes.

Why you might want to consider a Deed of Variation:

• Reducing the Inheritance Tax payable, for example, by redirecting some of the estate to charity or the surviving spouse, as any gifts to charity or spouses are exempt from Inheritance tax.

• Inheritance Tax planning for the beneficiaries. If any of the beneficiaries will already have a liability to Inheritance Tax upon their deaths they may elect to pass their share of the estate to their children (either outright or into trust).

• To give effect to the wishes of the deceased. Sometimes people’s wishes change after they have made a Will and they may not have had time to alter it.  The beneficiaries could give effect to those wishes by drawing up a DOV.

• If there is an unequal division of the estate a DOV could be used to balance the shares given to a brother and sister, for example, so that they each receive the same share of the estate.

• To incorporate a trust to protect a disabled beneficiary.

Although DOVs can be an extremely useful tool, they should never be relied upon as a way of estate planning. There is no guarantee that the effectiveness of DOVs won’t be reduced or even removed by a government in the future.

For more information on a deed of variation, or any other wills, probate and estates matter, please contact Rachel Conroy on 01772 258321.