When writing a will, a person will usually name at least one beneficiary. This is the person/entity that is legally designated to receive an inheritance, such as property or money, from your estate following your death. You may have been under the impression that there’s very little anyone can do to change your will, as long as it is valid and signed. However, a Deed of Variation can be made by the beneficiaries of a will to change their entitlements and potentially gift their inheritance to another person or entity as if this gift were made by yourself directly.
The Deed can be made before or after probate but must be within the first two years of the deceased’s death, and must be signed by all named beneficiaries who will be affected by the variation. They must all be over the age of eighteen and have full mental capacity, otherwise, an application must be made to the Court.
What Are the Benefits of a Deed of Variation?
There may be a number of reasons why beneficiaries named in a will might want to make changes to the distribution of an estate. For instance, you may name your two children as beneficiaries of your will, but in the last few years of your life, you are cared for by a close friend, whom you haven’t named in your will. Your two children may agree that your close friend should receive some financial compensation from your estate for the support they provided, in which case they can use a Deed of Variation to offer your friend an agreed-upon sum of money. Alternatively, one of your two children may be far wealthier than the other and decide they want the latter to receive a greater proportion of what was left to them in your will.Â
Sometimes, a will is no longer valid or there is no will at all, in which case inheritance is passed down via the Intestacy Rules. The Intestacy Rules are also followed if there is a valid will but it does not distribute all of the estate. For instance, the beneficiaries may have also passed away. These rules might not reflect what the deceased person may have wanted, in which case a Deed of Variation would prove useful.Â
So, based on the examples explored above, the main benefit of a Deed of Variation is that it allows beneficiaries to change how the estate is distributed. Another major advantage of a Deed of Variation is that it can reduce the amount of Inheritance Tax and Capital Gains Tax owed on the estate, for instance, if a proportion of the estate is redirected to a charity.Â
What Are the Drawbacks of a Deed of Variation?
A Deed of Variation can only be made once if it concerns the same assets, and it cannot be revoked. This means that care needs to be taken to make sure the Deed is 100% accurate the first time and written without any ambiguity. Lack of clarity with regard to a Deed of Variation can be a costly mistake to make. With this in mind, it is important to obtain professional support to be involved in creating a Deed of Variation so that nothing goes wrong, and also so that you fully understand it.Â
It can also be difficult for a beneficiary to set up a Deed of Variation if they receive any kind of means-tested benefits. If the beneficiary voluntarily chooses to give away money inherited from an estate through a Deed of Variation, they may become ineligible for their benefit, as it could be considered as part of the means-testing assessment.Â
Another downside of a Deed of Variation is that it cannot be made on behalf of someone who lacks mental capacity. In a circumstance such as this, the court would need to be involved, which is unfortunately very time-consuming and expensive. If you name someone who lacks mental capacity as a beneficiary in your will and they cannot acquire a Deed of Variation, they may be subject to predatory behaviour and their inheritance could end up falling into the wrong hands.Â
As a Deed of Variation requires all beneficiaries to agree and sign, there’s a risk that someone could be awkward or stand in the way, which could lead to family rifts. What’s more, there are often fees involved in drawing up a Deed of Variation, but if you end up saving on inheritance tax then it could be money well spent.
What Is Included in a Deed of Variation?
The following information is usually included in a Deed of Variation, and a legal witness(es) must be present:
The initial beneficiary's details and the new beneficiary's details
Information about the deceased and their will
What parts of the estate are being changed e.g. assets/money etc.
How the gifts will be given out