Alexander Grace Chartered Financial Planner

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Deed of Variations – What are they and when would you use one?

The words “Last Will” often appear as standard wording for every time an individual writes up a new will, thus revoking any wills previously drawn up. However, this does not necessarily mean that the instructions set out in this will are not subject to change. There are many instances where a person may die without an up to date will, or even without a will in place; this could lead to the estate being administered in such a way that may not be a true reflection of a person’s wishes.

Wills and the laws of intestacy can be amended and varied by the agreement of the beneficiaries via a Deed of Variation and there are several reasons why this may be considered an appropriate course of action.

As Financial Planners, we focus on the financial implications of inheritance, i.e., a beneficiary may already have an Inheritance Tax (IHT) issue and the windfall from the estate has worsened the liability, so they may wish to pass that inheritance down to their children or grandchildren. Another implication could be where a beneficiary wishes to dispose of an asset once inherited and this leaves them liable to Capital Gains Tax (CGT).

In scenarios such as the above, assuming statutory conditions are complied with, these assets can be redirected without implication to either IHT or CGT, should the Deed of Variation is completed within two years of death of the deceased – this is because it is considered a retrospective change by the testator that would be reasonably expected if they were alive.

At this point, it should be noted that inherited assets can be gifted by the beneficiary without using a Deed of Variation, however, it would be deemed as a lifetime gift from that individual and subject to the settlor surviving for seven years from the date of the gift to avoid any tax implications.

A Deed of Variation is not always undertaken for tax purposes and the reasons behind creating one is not exhaustive and could be for family reasons, such as a grandchild missing out in error, or a non-married partner mistakenly not being included due to no will in place, or the will not being updated. As long as the original beneficiaries who are impacted by the changes provide their consent to execute the amendment, then the reason for doing so are trivial.

There are some restrictions to a Deed of Variation to be aware of. You are not able to change the executor of the estate, even if the executor does not wish to take up their duties – this would have to follow a separate process. It is important to note that any changes are completed within two years of the person’s death, and this is for tax reasons. The variation must be in writing and made by the individual(s) who would benefit under the original will or laws of intestacy. There must also be no ”consideration” (payment) outside of the estate in return for the amendment.

Many people do not know the implications of receiving an inheritance, perhaps because they are not fully aware of their own financial circumstances, or the situation of the person whom they are receiving an inheritance from. We would always suggest that you sit down with one of our Independent Financial Planners to get a greater understanding of your financial position and would recommend speaking to a legal professional in the event a Deed of Variation becoming a viable option.

The information available through Alexander Grace is for your general information. In particular, the information does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be taken before making any such decision. Past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and you may not get back the money you originally invested.

Alexander Grace, a trading name of IWP Financial Planning Limited, is authorised and regulated by the Financial Conduct Authority. Financial Services Register No 441359. IWP Financial Planning Limited registered in England and Wales company registration number: 4138186.

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