A deceased’s Will sets out how that individual wishes their estate to be passed on after their death and in what shares.
At some point in your life, you may be a beneficiary in the Will of a friend or family member’s estate, whether it be to the extent of a cash legacy or a share of the residue.
Depending on your personal circumstances, you may already be in a position where you are financially comfortable and would not greatly benefit from the inheritance; perhaps the money left for you would actually detrimentally affect your inheritance tax position in terms of your own succession planning. You may have children, grandchildren or close family/friends who you feel would better benefit from the money than you would.
As solicitors, we always advise clients to keep their Wills under review to cater for things such as material changes in family circumstances or the like. The situation does, however, often arise where a deceased person may not actually have updated their Will for many years which may lead to the unintended consequence that it does not take account a change in their family circumstances or, indeed, a change in the law.
You may then wonder whether anything can be done in these situations to either redirect your inheritance, or rearrange the distribution of the deceased person’s estate.
Deed of Variation
It is possible to ‘vary’ the distribution of a deceased person’s estate after their death. As you would expect, there are a number of legal conditions to be complied with but the estate distribution can be altered by way of a “Deed of Variation”.
A Deed of Variation is an acceptable means by which to change who is to receive the benefit of funds that you are entitled to receive from an estate – it is essentially a re-writing of the deceased’s Will in relation to your legacy (or share of the residue of the estate). It is important to note however that, as a beneficiary, you cannot change the original Will provisions relating to another beneficiary; that is a decision they must make personally.
You may wish to redirect your entire entitlement in the estate to your nominated beneficiaries or, alternatively, you may choose to redirect a fraction or percentage of your entitlement – the Deed of Variation will be drawn up to accurately reflect your wishes. As the person who is ‘losing out’ (i.e. as you are giving up all or part of your entitlement) you will be required to sign the Deed of Variation. The estate Executors need only sign the variation if it results in more Inheritance Tax being payable.
It is also important to note that if a Deed of Variation is completed within two years of the date of the deceased’s death, and all of the requisite legal conditions are complied with, then the variation will also be effective for Inheritance Tax and Capital Gains Tax purposes.
In an estate where there is no Will (i.e. the deceased died “intestate”) the intestacy rules determine who will inherit the estate and to what extent. A Deed of Variation can also be used in these circumstances so that the distribution of the intestate estate can be rearranged.
If you do not enter into a Deed of Variation and, instead, receive your entitlement from the estate and subsequently choose to ‘gift’ it on, the position is quite different. Here, you are making a “potentially exempt transfer” (PET) and, if you survive for 7 years after making the gift, it will fall outwith your estate for Inheritance Tax purposes. Otherwise, the value of the gift will be added back into your estate.
If you need advice about a Deed of Variation, please get in touch with the Blackadders’ Private Client Teams working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
Millie Crocker, Solicitor
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