Deeds of variation: When is it appropriate to use them?

If you are due to inherit and you would like to redirect your inheritance elsewhere (for example if you would prefer your children to inherit instead), you can do this via a deed of variation.

A deed of variation is sometimes called a deed of family arrangement. It can be useful if, for example, you have your own inheritance tax problem and you do not want the money entering your own estate.

As long as the deed of variation is completed within two years of death, for inheritance tax and capital gains tax purposes it can be treated as if the deceased themselves made these gifts in their will.

However, in some circumstances, a deed of variation will not be appropriate. For example:

• If consideration is given. If the person varying their entitlement receives something in return, then this is likely to fall foul of the tax rules and HMRC may
  wish to investigate.
• To avoid care fees. If a deed of variation has been entered into when care was already being received or if it was foreseeable that care might be needed in the future, then diverting inheritance elsewhere may be seen as a deliberate deprivation of assets by the local authority. If it is found to be a deliberate deprivation of assets then it may be disregarded and fees still charged or the person receiving the inheritance may be made to pay for the care fees in future.
• If you are on means-tested benefits. If you were in receipt of, or were hoping to be in receipt of means-tested benefits and an entitlement under a will was varied, then this may be a criminal offence in some cases, or at the very least leave you ineligible for certain benefits.

If you are considering a deed of variation, it is extremely important that they are drafted correctly and that they fulfil all of the legal requirements for them to be effective.

If you are looking for bespoke advice as to whether a deed of variation would be appropriate for your situation, please contact our wills, trusts and probate team.

Jennifer is a solicitor in the wills, trusts & probate team. She helps individuals and families with the preparation of wills, trusts, inheritance tax planning and lasting powers of attorney. She also deals with the administration of estates.