Are you due inheritance or have you received an inheritance in the last two years that you don’t want or wish to gift on?

If so, there are various options open to you:

  • You could accept the inheritance and then make gifts during your lifetime. This option could have inheritance tax implications so legal advice should be taken; or
  • You could ‘disclaim’ your inheritance if you don’t want it at all and the money will remain part of the deceased’s estate and will be redistributed in accordance with the terms of the Will/ Intestacy Rules. By disclaiming your inheritance you do not have control over where the money then goes. It is therefore important you take legal advice if you wish to disclaim your inheritance; or
  • You could redirect some or all of the inheritance using a ‘post death variation’ i.e. to your children. This is also known as a ‘Deed of Variation.’

How does a Deed of Variation work?

Providing that a certain conditions are met, a Deed of Variation can be prepared to redirect an inheritance as though that provision was originally in the deceased’s Will.  Deeds of variation are useful tax planning tools that  can help you to mitigate tax whilst making a gift to others.

If you are considering a deed of variation you need to be aware the specific conditions apply to post death variations, if these conditions are not met then the tax advantages will be lost.

For a deed of variation to be valid it must be:

  • A deed of variation must be in writing
  • A deed of variation must be executed within two years of the deceased’s date of death.
  • It must also contain a statement that the tax exemption rules are to apply.
  • Be made by an individual who benefits/ would have benefited from the Will or Rules of Intestacy and therefore giving up their benefit.
  • The variation must not be made for consideration of money/ from a source outside of the estate.

The idea of refusing an inheritance may seem strange but people who are already financially secure may want to redirect an inheritance to avoid increasing the value of their own estate and therefore mitigate their potential inheritance tax liability (IHT) .

A Deed of Variation can also be useful to utilise reliefs or exemptions such as Business Property Relief (BPR). For example, a deceased business owner leaving business assets to their spouse or civil partner, could waste their BPR relief because assets passing to a surviving spouse or civil partner are already exempt for IHT purposes. Therefore, redirecting qualifying assets to a non-exempt person can make full use of the available BPR relief.

Although there are many positive reasons for preparing a Deed of Variation, it may not always be appropriate to do so depending on your circumstances. For example, if a you are in receipt of means tested state benefits or are paying for care then caution should be exercised as there might be problems associated with a deliberate deprivation of capital. You should also be careful as to who you are redirecting the inheritance to as someone else could lose their means test benefits.

How We Can Help

If you would like further information about a Deed of Variation, then please do not hesitate to contact me on m.lovell@timms-law.com or 01283 561531