Govt figures tell us that a record number of UK families will face an Inheritance Bill. Therefore, a greater number of individuals will be receiving an inheritance.
Leaving an inheritance sounds like a nice thing to do, but in fact in can turn into a distinct unkindness …. depending on how it was arranged. Take John, a Norfolk resident, truly amazed at his good fortune when he heard he was to receive a legacy worth £200,000. His euphoria was somewhat diminished when he realised learn that his inheritance brought some unexpected problems.
The legacy would increase his own estate value landing him with a substantial Inheritance Tax liability. Moreover, John realised that others would now have a distinct interest in his newfound wealth, not the least his ex-wife!
John soon cheered up after learning that it was indeed possible to have his legacy without any of the problems!
The solution is a Deed of Variation (DoV). This is a legal mechanism which could remove John’s IHT problem, and ensure that his legacy got maximum protection.
A DoV enables the Beneficiaries of a deceased’s Estate to alter the distribution of that Estate, or relinquish a bequest from an Estate.
A DoV must be executed within two years of the Testator’s death, be in writing and signed by the Beneficiary varying the gift left to him or her in the Will or under Intestacy.
Why Use a DoV?
Because it avoids the usual situation whereby assets, via a Will (or intestacy), are distributed absolutely to the beneficiaries, leaving the assets immediately exposed to risk of attack such as:
- Survivor spouse’s Re-marriage
- Divorce or Separation Settlements
- Creditors or Bankruptcy Claims
- Long Term Care Fees
- Further Inheritance Tax bills (Generational IHT)
Who can use a DoV?
Any person who will benefit under the Will or Intestacy Rules and wants to reject or redirect their interest, provided they meet certain statutory requirements.
The original Beneficiary
- can vary, even though a benefit has been obtained under the original gift
- can vary part of a gift
- can re-direct to whom the gift is to go to
- can obtain Inheritance Tax (IHT) and Capital Gains Tax (CGT) benefits
- will still benefit from the trust that subsequently holds his/her legacy
Death without a Will, can the Beneficiaries still effect a DoV?
Yes, Will or no Will, a DoV can still be considered.
Grant of Probate already obtained, is this too late for a DoV?
No, provided the DoV is executed within two years from the date of death.
With multiple beneficiaries can just one of them consider a DOV?
Yes. All the Beneficiaries do not need to agree and a DOV can be undertaken for just one beneficiary and for any part of his/her Inheritance.
Truth be told, Deeds of Variation would not be required if more thought were given to estate planning at the outset. Break the long held myth that ‘all you need is a Will’ and with more people using trusts we would see far more assets staying within the family, a lot less tax paid and far fewer post death legal problems!
But until then Deeds of Variation are still a very valued but massively under used Estate Planning tool. The advantages gained in reducing generational IHT, protecting assets from care cost, or being attacked by divorce of the beneficiaries cannot be overestimated.
With ever increasing property values we all have need of professional estate planning. Fortunately, reliable and in-depth advice is now affordable by most of us, and no longer the privilege of the very wealthy. It’s also good to know that very often the right planning can actually ‘pay for itself’.