Deeds of Variation - Are they Justified
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Deciding to make a Will and
then actually putting the decision into action can be a somewhat stressful,
upsetting and daunting task for some people. So it may be a little disconcerting
to learn that after you have put all that effort and thought into planning your
Will that there might be some opportunity for those left behind to change your
instructions and alter your Will. after you are gone. It is a perfectly sound
argument to point out that you have the right to leave your possessions to
whom you please and therefore why should disgruntled beneficiaries be allowed to
change your instructions?
The Government's focus on tax
avoidance, the overhaul of the trusts regime as proposed in the Pre-Budget
Report 2004 and the consequent new legislation - Finance Act 2004 (to come into
effect April 2005) - led some to believe that Deeds of Variation - the means by
which a testator's instructions in a Will are amended - would cease to be valid.
However, the Chancellor Gordon
Brown did not rule out their existence and therefore such Deeds have continued
application and relevance. So what exactly are Deeds of Variation, how are they
created and what is the justification for their continued existence?
Deeds of Variation -
What Are They?
A Deed of Variation is a
written document which seeks to amend/vary certain instructions/dispositions in
a testator's Will. The result of a variation to any Will is that one or more
beneficiaries will have their entitlement affected in order to take into account
someone else's new entitlement; this means that either their share is reduced in
value or completely obliterated. The following example, (whilst probably very
artificial), demonstrates the point.
Maude in her Will left £6,000 to her son Michael and nothing
to her daughter Michelle. To rectify the unfairness of the Will disposition
Michael agreed to a Deed of Variation by which his share was split with his
sister, thus allowing each to receive £3,000.
In order to be legally valid,
the Deed must comply with certain conditions;
Must be made in writing.
All persons who were
original beneficiaries in the Will and any persons who benefit from the
proposed variations in the Deed must sign the Deed.
It cannot be given for
money or money's worth.
It must be made within 2
years of the death of the decedent.
The first criterion is self explanatory
so we turn to the issue of consent. With the above example in mind it appears
clear why consent of all parties is required due to the significant changes in a
beneficiary's entitlement which can ensue from any variation. A clear indication
of consent is a signature.
Money or Money's Worth
The must be no inducement for a beneficiary of
a Will to agree to a variation which would benefit someone else. Again, an
example will demonstrate the point.
Walter leaves substantial
gifts to his two children Jane and Wayne but consequently has left his widow
Joan impoverished and unable to sustain herself. Jane and Wayne agree to give a
share of their gifts to their mother on the agreement that Joan will return it
to them in the form of PETs (potentially exempt transfers). This will be deemed
to have been given to Joan for money or money's worth and thus will not
constitute a valid Deed.
Made Within 2 Years of
The Deed must be made within 2 years of the
decedent's death and this time frame is due to issues of tax. If made after more
than 2 years the Deed cannot be given retrospective affect for either Capital
Gains Tax (CGT) or Inheritance Tax (IHT) purposes which, as we shall see, is one
of the main reasons Deeds of Variation are still used.
Justification for Deeds
Perhaps the above examples
have already provided some clues as to why Deeds of Variation still have
application in UK law. The example of Michael and Michelle demonstrates that
such Deeds can serve an equitable role in correcting/amending what would
otherwise appear to be unfair dispositions.
The unfair dispositions might not be intentional on the part of
the testator, particularly where they have not updated their Will.
1998 when Monica made her will, her relationship with her daughter Amy,
problematic for years, had eroded to the point that Monica decided to leave Amy
nothing in her will, dividing her estate of £1,000,000 equally between her two
other children, Sam and Sadie.
By the time of Monica’s death last year she and Amy had reconciled, and
Monica often voiced her intention to change her will to leave Amy one third of
Due to infirmity Monica died before making this intended change, but
aware of her wish, Sam and Sadie give Amy one third of Monica’s estate via a
But Deeds of Variation serve
another practical role, and this is within the realm of tax.
Not everyone engages in estate
and tax planning let alone makes a Will in the first place! Thus a person may
have made a Will which upon their death was grossly out of date and an
intolerable - and avoidable - amount of tax particularly IHT ensues. Or maybe
there was no Will at all, in which case there would have been no IHT mitigation!
This is where a Deed of Variation can save the day.
Malcolm left everything he
owned to his wife Maude by survivorship. Transfers to spouses are automatically
exempt anyway which means that Malcolm failed to utilise his Nil Rate Band
Exemption. The result is that a hefty IHT bill will accrue on Maude's estate
upon her death. Michael and Maude have adult children and a Deed of Variation
could be agreed whereby Malcolm could leave his NRB legacy to his children thus
using his allowance.
On the other hand, if
Malcolm's Will left more than the current IHT allowance to his children in error
(an outdated Will for example) the tax would be due immediately. A Deed of
Variation could remedy this by changing the beneficiary to Maude thus resulting
in delayed IHT and allows Maude time to engage in some tax planning and gift
giving to reduce the value of her estate.
It has been argued by many
that the very notion of allowing family members to alter the wishes of the
deceased Will maker flies in the face of freedom of choice - freedom to choose
who to leave one's own possessions to and who NOT to benefit as the case may be.
But I submit that the value of
such legal documents far outweighs their 'intrusive' nature. They are able to
remedy a range of situations, including persons who have wrongly been ignored
reaping some benefit to those who have unintentionally been left out or not
Taking into account the fact
that approximately 70% of people do not make a Will and with the ever increasing
value of people's estates beneficiaries can be left with sometimes overwhelming
tax bills due to their family member leaving everything to intestacy, and here
again the Deed of Variation comes to the rescue. And even those with the
foresight to make a Will can make mistakes and not plan adequately; the Deed of
Variation can come to the rescue in minimizing the tax that as inadvertently
The Deed of Variation is by no
means a perfect tool and there are no doubt situations which it just cannot
present itself as a remedy. But from the tax perspective alone, with an
ever increasing tax-hungry Government seeking to minimize tax avoidance schemes
where ever possible, one is thankful that this tax saving tool and equitable
remedy has been left untouched.
For the meantime that is...
About the AuthorJsByrne
LLB (Hons) LPc.
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Article Published/Sorted/Amended on Scopulus 2006-06-09 23:38:40 in Legal Articles