It may seem a very odd thing to do but, in some personal and financial circumstances, the decision to give away an inheritance is the right thing to do.
Most people assume that if they have the good fortune to inherit something under a loved one’s Will or intestacy provision, they have to accept the legacy. This isn’t always the case.
In an ideal world, it should not be necessary to consider giving away a legacy because the loved one would have left a Will, rather than dying intestate, or would have discussed the bequest in the Will and would have updated their Will.
However, what does happen if you receive a gift as part of an inheritance and you decide you do not want or need it? There are a number of circumstances where the beneficiary of a Will may not want to receive their inheritance, for example:
- They may want to make provision for someone who has been excluded from the Will; or
- They may want to give their share of the deceased’s estate to a family member who is not as financially well off as they are ; or
- They may want to equalise the gifts if the testator has favoured them over other beneficiaries; or
- They may wish to give all of their legacy or part of it to charity; or
- They may want to make the Will tax efficient.
Deeds of Variation
In order to make changes to a Will after the death of the testator, a Deed of Variation should be drawn up.
So that the tax advantages from the Deed of Variation can be obtained, the document has to be signed and executed within two years of the date of death of the testator.
A Deed of Variation can be executed before or after the Grant of Probate or Letters of Administration (if the deceased died intestate without a Will) has been obtained. Any beneficiaries who are affected by change in Wills must agree and sign a Deed of Variation. Furthermore, all the personal representatives of the estate should also ideally sign the Deed of Variation.
Who Can Sign a Deed of Variation?
If a beneficiary has capacity to make their own decisions then they have the authority to execute a Deed of Variation. A beneficiary under the age of eighteen cannot sign a Deed of Variation. No one else can sign a Deed of Variation on behalf of a minor child.
How Can a Deed of Variation Reduce Tax?
A Deed of Variation may be the answer if a Will has not been drawn properly to obtain the best tax treatment or the tax rules have changed. For example, executing a Deed of Variation may reduce the inheritance tax payable by:
- Varying the gifts in a Will to leave money to charity. Any gift to charity does not attract an inheritance tax charge. If charities are left at least ten percent of the net estate then the estate can qualify for a reduced rate of inheritance tax of thirty-six percent, instead of forty percent;
- If a husband or wife died without a Will, with children, the surviving wife, husband or civil partner will receive assets up to £250,000 and half the remainder of the estate. The other half of the estate would pass to the children. If the amount going to the children exceeds £325,000 then this will attract inheritance tax. A Deed of Variation can be signed so the entire estate passes to the surviving spouse or civil partner. If an estate passes to a surviving spouse or civil partner no inheritance tax is payable. The transferable nil-rate band can be utilised on the second death.
It pays to get legal advice on whether a Deed of Variation is a sensible option. Some may think that a Deed is unnecessary but with expert legal advice, it can save on inheritance tax and money to get a Deed of Variation drawn up.
For advice about preparing a Deed of Variation or drawing up a Will or estate planning please call +44 (0) 1477 464020 or by email at [email protected].