Deed of variation – what is it and when is it used?
If you have recently lost a loved one and started looking at their will, you may have been told that a “deed of variation” could help tidy things up. It can sound very technical at a time when you already have more than enough on your plate.
Put simply, a deed of variation is a formal document that lets a beneficiary change what they are due to receive from an estate. Instead of keeping everything themselves, they can redirect part or all of their inheritance to someone else, or to a charity, as if the gift had been made by the person who died.
The deed can usually be made either before or after probate, but it must be completed within two years of the date of death. Any beneficiary whose entitlement is being reduced or altered has to agree and sign, and they must be over 18 and have mental capacity. Where someone cannot consent, an application to the court may be needed.
Why might you want to use a deed of variation?
There are lots of everyday situations where a deed of variation can be helpful. For example:
- The will leaves everything to two adult children, but in later life a close friend provided most of the care. The children may feel it is fair for that friend to receive a gift from the estate.
- One child is financially comfortable and another is struggling. The better off child might decide to give up some of their share so that their sibling receives more.
- There is no valid will and the intestacy rules send everything to relatives the deceased was not actually close to. The family may agree that a partner, stepchild or charity should benefit instead.
In all of these cases, a deed of variation allows the beneficiaries to put things right without having to challenge the will itself.
A further advantage is that a well drafted deed of variation can sometimes help reduce inheritance tax or capital gains tax, for example where money is redirected to a charity or to a beneficiary who is in a lower tax bracket.
What are the disadvantages of a deed of variation?
Although a deed of variation is a flexible tool, it is not risk free. Some of the main drawbacks are:
It can only be done once for the same assets - Once you have signed a deed of variation dealing with a particular part of the estate, you cannot simply change your mind later. The document is normally final and cannot be revoked. That is why it is so important to get the wording right and make sure everyone understands what they are signing.
It needs clear, careful drafting - Any uncertainty in the deed can cause problems for the executors, the beneficiaries and even HMRC. Mistakes can be expensive to fix. It is very easy to miss something if you try to draft the document yourself, which is why legal advice is strongly recommended.
It can affect means tested benefits - If a beneficiary is receiving means tested benefits and they choose to give away part of their inheritance using a deed of variation, this can be treated as if they still had the money. That may affect their entitlement to benefit. It is vital to take advice before signing anything if you are in this position.
It is more complicated where someone lacks capacity - A deed of variation cannot simply be signed on behalf of someone who does not have mental capacity. In that situation the court is likely to need to be involved, which can add time and cost. Families sometimes find themselves in a difficult position if a vulnerable beneficiary’s inheritance cannot easily be redirected or placed under proper protection.
Everyone who is affected has to agree - Because all affected beneficiaries must sign, a single person refusing to co operate can block the deed. In families where there are already tensions, that can cause further friction.
What information is usually included in a deed of variation?
Although every case is different, a deed of variation will usually set out:
- Details of the original beneficiary and the new beneficiary
- Information about the deceased and their will, or the intestacy position
- The assets or sums of money that are being redirected
- Exactly how and in what shares the gifts will now be divided
The deed must be signed and witnessed correctly, and it should contain specific wording if tax treatment is a key reason for making the changes.
How can you decide if a deed of variation is right for you?
A deed of variation can be a very useful way to correct an unfair outcome or to carry out what the family believes the deceased would really have wanted. However, the disadvantages of a deed of variation mean it is not something to rush into.
Before you sign anything it is sensible to:
- Talk openly with the other beneficiaries
- Check how the changes will affect the overall estate and any tax due
- Take advice from a solicitor who deals with wills and estate administration on a regular basis
If you need help drawing up a will or deed of variation, or you are unsure whether one is appropriate in your situation, the Private Client team at John Fowlers Solicitors can guide you through your options and prepare the paperwork for you. You can find out more about our will and estate planning services and contact us using the enquiry form on that page.