What is a deed of variation?

A deed of variation is a legal document which changes the distribution of assets under a will after the death of the “testator” (the person who made the will) or which varies the distribution of the deceased’s estate when they die “intestate” (without leaving a will).
 

A deed of variation is also commonly known as a “deed of family arrangement” or an “instrument of variation”.

When are deeds of variation used?

Deeds of variation are commonly used as a means for mitigating future Inheritance Tax liabilities and Capital Gains Tax liabilities.

They are also used where beneficiaries wish to redress any imbalances, for example, where some one has been missed out of a will or where the financial needs of one beneficiary is greater than that of the other beneficiaries.

When can a deed of variation be made?

A deed of variation can be made within 2 years of the deceased’s death as long as the following criteria are met:

• All of the beneficiaries who are adversely affected by the deed of variation agree to it;

• There is no “reciprocation”. Basically this means that none of the beneficiaries are compensated for what they give up;

• That none of the assets to which the deed of variation relates are affected by a “gift with reservation of benefits”. A gift with reservation of benefits is where a person gives property to another person but retains a benefit or enjoyment of the property, normally in an attempt to avoid paying Inheritance Tax.

If a proposed variation affects the rights of children or unborn children then it will normally be necessary to obtain approval from a Court before the deed of variation can be made.

If a deed of variation can be used to mitigate my estate’s liability to Inheritance Tax do I need to make a will in the first place?

There are many good reasons for making a will and mitigating your estate’s liability to Inheritance Tax is only one of these. Furthermore the rules relating to Inheritance Tax could change in the future so as to prevent the tax saving benefits of deeds of variation. For these reasons it is generally considered to be sensible to make a will.

Can a deed of variation be used to avoid having to pay care costs?