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| Deed of Variation / Deeds of Family Arrangement by Bryan Dean 9/10/2009 |
| With regard to the estate of a deceased person, a Deed of Variation is the same as a Deed of Family Arrangement. The latter is merely a more commonplace description of the Deed amongst the general public. In principle, any adult beneficiary of an estate of a deceased can vary his or her inheritance by Deed of Variation. Other than that, the law has for many years provided that a beneficiary may disclaim a legacy, and this remains an alternative. In respect of a Will, a beneficiary can vary the whole, or any part, of the extent of that beneficiary's inheritance for the benefit of another person or persons or charities. This contrasts with a disclaimer, which must be of the entire gift. The beneficiary may also vary that beneficiary's entitlement on an intestacy, or a partial intestacy. This is where the beneficiary inherits, due to proximity of relationship to the deceased, who has failed to leave a valid Will, or, at least, a Will that deals with the deceased's entire assets. A Deed of Variation can be used in respect of the deceased's share of property held with another as joint tenants (property passing by survivorship), and any nominated property (certain National Savings products may be nominated to a beneficiary), as well as ordinary assets in the sole name of the deceased. A Deed of Variation may be made at any time after the deceased dies, but it is usually made within the period of 2 years, as by the Deed, the beneficiary can elect that both for Inheritance Tax (IHT) and Capital Gains Tax (CGT) purposes, the redirection be read back to the date of death. In other words, it will not be treated by HM Customs and Revenue as a gift by the redirecting beneficiary for IHT or CGT purposes. If any additional Inheritance Tax is payable by virtue of the variation, then the personal representatives of the deceased have to be incorporated as a party to the Deed and the election has to be recorded at the Revenue. Due to these tax concessions, both the Conservative Party, in 1989, and the Labour Party, in 1994, proposed to drastically curtail the scope of such Deeds. In the upshot, neither political party went through with any legislation, but it remains sound advice that any tax planning should ideally be made by the deceased, prior to their death, in his/her Will. It is not possible to vary the same item of property in a deceased's estate twice. Furthermore, the ultimate beneficiary must not give "consideration", for example money, to the beneficiary making the redirection of the inheritance. In conclusion, where tax planning has not been undertaken by the deceased, or where the original beneficiary does not need to inherit, Deeds of Variation remain an extremely useful tax planning tool. For more information, including general wills and private client advice, please contact Bryan Dean. |