What Is a Deed of Variation and How Can It Help After Someone Dies?

A deed of variation, sometimes called a deed of family arrangement, allows the beneficiaries of an estate to redirect their inheritance to other people or to different shares than those provided for in the will or the intestacy rules. It must be made within two years of the death and must meet certain conditions to be treated as effective for inheritance tax and capital gains tax purposes.

Why Would You Use a Deed of Variation?

There are several reasons why beneficiaries might wish to vary the distribution of an estate. They may want to pass assets to a generation below them to reduce inheritance tax in their own estate. They may want to provide for someone who was not adequately provided for in the will. They may want to achieve a fairer distribution where the will or the intestacy rules have produced an unintended result. Or they may want to redirect assets into a trust for tax planning purposes.

What Are the Inheritance Tax Advantages?

Where a deed of variation meets the statutory requirements, the variation is treated for inheritance tax purposes as if it had been made by the deceased, not by the beneficiary who is redirecting their inheritance. This means the beneficiary is not treated as making a gift that might be subject to inheritance tax in their own estate if they die within seven years. HMRC must be notified if the variation results in more inheritance tax being payable.

What Are the Conditions?

The deed of variation must be made in writing within two years of the death. All beneficiaries who are affected by the variation, meaning those whose entitlements are being reduced, must agree and be party to the deed. The deed must contain a statement that the parties intend it to take effect for inheritance tax and capital gains tax purposes if they want the tax advantages to apply.

Can a Deed of Variation Be Used to Avoid Creditors?

No. A deed of variation cannot be used by a beneficiary who is insolvent or facing creditor claims to redirect their inheritance away from their creditors. The courts and trustees in bankruptcy have the power to set aside variations that amount to transactions defrauding creditors.

Summary

A deed of variation allows beneficiaries to redirect their inheritance within two years of a death, with potential inheritance tax and capital gains tax advantages. All affected beneficiaries must agree. It cannot be used to defeat creditor claims. A specialist probate barrister can advise on whether a deed of variation is appropriate and help with the drafting.

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