Post Death ‘Will Variations’
Background
In last weeks Muras Matters we set out the importance of making a Will however when an individual dies it is still possible for the assets in their estate to be distributed in a different way to that set out in their Will if certain conditions are met.
Any variation must be made by deed and agreed by the beneficiaries as it is they who may be giving up their entitlement to inherit.
Such a course of action may be desirable for tax planning purposes (it can be effective from the date of death for both inheritance tax and capital gains tax) or to ensure the ‘right’ individuals receive their entitlement, perhaps in the case of intestacy, although of course the latter shouldn’t be relied upon.
Conditions
There are two main conditions to be satisfied for a ‘Deed of Variation’ to be effective for tax purposes; firstly it must be made within 2 years of the date of death and secondly it must not be made for any ‘consideration’ either in money or ‘moneys worth’ (other than in the case of beneficiaries ‘swapping’ assets).
This latter condition was reinforced in a case heard at the Special Commissioners where children of the deceased disclaimed their inheritance in return for large cash gifts once the estate was finalised. As such the deed was held to be ineffective for inheritance tax.
Conclusion
This is clearly a complex area of planning with many pitfalls as the case shows. It should not therefore be undertaken without first taking professional advice. Similarly the ability to enter into such an arrangement should not be used as a substitute for having a properly drafted, up to date Will which is reviewed regularly.
If you have any concerns over Inheritance Tax in general please contact our Tax Director, Jenny Marks.