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Deeds of Variation
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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.
Example:
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.
- Persons who are affected by the Deed of Variation i.e. their share is altered in some way 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.
Consent
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.
Example:
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.
Signing the Deed
The person opting to make the Deed of Variation must sign it. In addition, any beneficiary whose share is adversely affected by the Deed also needs to agree to the Deed of Variation by signing it.
Example:
Ben was left a large legacy in his mother's Will. He has sufficient capital and income of his own and therefore wishes to redirect the legacy to his two children.
As it is only Ben whose interests will be adversely affected by the Deed of Variation, only Ben will need to sign it.
Made Within 2 Years of Death
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 of Variation
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.
Example:
In 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 her estate. 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 variation.
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.
Example:
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.
