Darren Linthwaite
Private Client Solicitor
Phone: 0113 200 7480
Email: ls@averywalters.com
Our Private Clients Specialist Guide to Deed of Variation and Disclaimers
We provide a free initial no obligation consultation to discuss Deeds of Variation and Disclaimers to estates and to discuss your options, the process, costs and likely timescales.
What is a Deed of Variation?
A Deed of Variation is a document that can be prepared for a beneficiary of a deceased person’s estate that allows them to give up their entitlements under the deceased’s Will or the intestacy rules in favour of other individuals.
It can apply to anything in the estate such as land, cash, a share in the residuary estate or a beneficial interest in a trust.
A Deed of Variation works by allowing the beneficiary to rearrange or redirect the interest that came to them originally from the deceased's estate. In effect, the beneficiary is transferring to another beneficiary some or all of the interest they have inherited. This transfer is usually made by way of a gift, but it can also be by exchanging respective interests in the estate or by selling an interest.
Reasons for making a variation
There are a number of reasons a person may choose to give up their entitlement:
• To provide for others who are in greater need of funds or other resources, such as a house.
• Giving 10% of the estate to a beneficiary who is exempt from paying Inheritance Tax (IHT) (such as a charity) can lower the Inheritance Tax rate from 40% to 36% resulting in a lower IHT bill for the estate as a whole.
• Redirecting assets qualifying for IHT relief from an exempt beneficiary to a non-exempt beneficiary so that the relief is not wasted i.e., business property.
• Using the deceased’s IHT nil rate band by creating a discretionary trust or making an absolute gift of the value of the nil rate band.
• Using the deceased’s residence nil rate band by redirecting the deceased’s qualifying interest to their descendants.
A beneficiary who gives up their entitlement makes a lifetime disposition. However, if the disposition is made within two years after the deceased’s death, it is treated as if it had been made by the deceased for inheritance tax and capital gains tax purposes.
Advantages of a variation
Making alterations in the distribution of an estate after death has several advantages:
• It allows the original beneficiary to control the redirection of all or part of their interest in the estate.
• It can be made either during the administration of an estate of after it has been finalised.
• It can have a retrospective effect for IHT and Capital Gains Tax (CGT) purposes, allowing for variation to avoid potential charges to IHT and CGT that may otherwise arise in relation to lifetime gifts by that beneficiary.
Income Tax
Income Tax legislation does not provide for retrospective treatment of a variation so that, for income tax purposes, a variation is only effective from the date it is executed.
The original beneficiary is assessed on the income up to the date of the variation while the new beneficiary is assessed on the income after the variation. However, a variation can have an effect on these rules on liability to income tax, depending on the type of interest, when the right arises and when it is paid. For example:
Pecuniary Legacy: The beneficiary is entitled to interest on the legacy only if it is paid to them after the deceased has been dead for one year.
Specific Legacy: The beneficiary is entitled to income arising on the legacy from the date of the deceased’s death.
Residuary Entitlement: The beneficiary is entitled to have their share of income paid to them, whether their interest is ‘limited’ or ‘absolute’.
What is a Disclaimer?
An individual who does not want to benefit from an estate can refuse their interest in it completely and disclaim it, provided that they have not accepted any benefit from it before disclaiming it. However, if they disclaim it, they have no control over who should receive the benefit in their place.
They must disclaim the whole interest, not just part of it (unless the Will specifically allows for partial disclaimers.
Why are these made?
These may be made in the following situations:
• There could have been a change in circumstances since the Will was written, a falling out between a testator and a beneficiary, or a beneficiary may feel that others are more deserving than them and may feel that it is appropriate to refuse their gift.
• The original beneficiary may already have a sizeable and valuable estate and therefore not wish to take the gift but are not concerned as to who receives the gift otherwise.
• Where a disclaimer results in an increase in the amount of IHT payable, the personal representatives can’t veto a disclaimer, whereas they might well refuse to be a party to a variation.
Difference between Disclaimer and Deed of Variation
How can Powell Eddison Help?
Powell Eddison can provide assistance in the following ways: -
• An initial free consultation to provide guidance with no obligation to proceed.
We can meet with personal representatives to discuss the terms of a Will, or advise on the rules of intestacy, discuss whether a Deed of Variation would be of benefit to the estate, provide general advice, and set out available options or next steps.
We can also meet with beneficiaries who wish to vary their interest in an estate, or disclaim their interest in full.
What else can we assist with?
• Obtaining Probate
• DWP claims against the estate
• Statutory notices for creditors
• Renunciation & power reserved
• High net worth and taxable estates
• Sale or transfer of probate properties.
We understand that this process can be daunting and difficult, especially at a time when you are suffering a bereavement and trying to grieve. We can advise you throughout the matter, without using legal jargon to ensure you understand everything.
We can deal with the whole process for you to give you peace of mind.
Contact us on 01423 564551 or email us on info@powell-eddison.co.uk to arrange your free initial, no obligation consultation with a specialist.
