Changing The Distribution Of An Estate

Changing The Distribution Of An Estate

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Changing the Distribution of an Estate

There are various reasons why beneficiaries might want to alter and change the distribution of a deceased’s estate. These include to:

  • Reduce Inheritance Tax or Capital Gains Tax Payable
  • Transfer all or part of an estate to different beneficiaries
  • Move Assets Into A Trust
  • Remove Uncertainty From The Will
  • Rebalance the Estate

In order to achieve these aims, a Deed of Variation must first be created. A Deed of Variation allows a beneficiary to redirect their entitlement to a deceased estate to someone else , irrespective of whether that person was included in the Will.

What Is A Deed Of Variation?

A Deed of Variation allows a beneficiary to a deceased estate (under a Will or the Intestacy Rules) to redistribute their entitlement from the estate to someone else.

For example, if the deceased’s Will leaves the estate to be divided equally between two children, but the deceased has three children, it may be decided that the estate could be divided equally between all three children instead. To do this, the two children included in the Will would have to agree on this arrangement. If only one child agrees, then only their share of the estate can be altered.

A variation cannot be made without the consent of everyone likely to be affected by it. So, Deeds of Variation need to have the agreement and consent of all the beneficiaries affected by the proposed changes. If children, minors, or persons with a mental disability are involved, then an application needs to be made to the courts for consent to be obtained on their behalf.

Aside from Inheritance Tax purposes, a Deed of Variation can be prepared at any time, before or after a Grant of Probate is issued, and can even be carried out after the administration of the estate has been completed, as long as it is within two years of the date of the deceased’s death.

For more information on how to obtain a Deed of Variation, contact us now on 01536 276300 to arrange a free initial no obligation chat.

Inheritance Tax

A Deed of Variation can be used to reduce the potential Inheritance Tax liability of the deceased’s estate (for example, if the redirected gift is to a surviving spouse or charity).

If the deceased’s estate proposes to distribute assets to a person who already has sufficient assets of their own and may have an inheritance tax problem themselves, by creating a Deed of Variation, that person could elect to have the assets passed to their children instead, thereby reducing the potential value of their estate.

In this way, the person who has given up their entitlement to the deceased’s estate is not deemed to have received or made the gift but instead, it is the deceased who is deemed to have made the gift directly to the new beneficiary.

For a Deed of Variation to reduce the amount of Inheritance Tax payable, the following requirements must be satisfied:

  1. The Deed of Variation must be completed within two years of the date of death.
  2. The relevant tax declarations must be included in the Deed.
  3. No incentives or bribes should be given to any beneficiary to enter into the Deed.
  4. The destination of a benefit cannot be varied more than once in different Deeds, although more than one Deed is permissible if they deal with different benefits.
  5. Everyone affected by the variation must consent and sign the Deed.

Residential Care

One way in which married couples can protect and ring-fence half of their shared assets from being used to pay for residential care fees is if, after the first death, the survivor enters into a Deed of Variation so that the deceased’s half share passes, not to the survivor, but into a trust or to their children.

Creating a Deed of Variation and changing the deceased’s Will after their death to try to avoid assets being included in the care fee assessment can sometimes be seen by Local Authorities as an attempt to deliberately deprive them of assets that they could have used to fund their long-term care costs.

However, entering into a Deed of Variation to provide protection for half of a married couple’s assets is a worthwhile strategy that is still occasionally successful; so long as the survivor is fit and healthy and is not at risk of entering into residential care in the future.

Re-Organising and Balancing Estates

Sometimes, following a death, it becomes clear that the terms of the deceased’s Will might lead to some problems such as certain people benefiting more than they should. By using a Deed of Variation, the deceased’s Personal Representative or Executor can change the way monies are allocated to redistribute in a way that the family are more comfortable with.

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