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Murray Beith Murray is a leading Scottish private client law firm.

For over 170 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.

Call us today on 0131 225 1200
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4 minutes reading time (849 words)

Three reasons to use a Deed of Variation

andrewBeneficiaries are those entitled to share in the estate of someone who has died. Beneficiaries receive their inheritance either through the Will of the deceased or, where the deceased did not make a Will, through the rules of intestacy.

However, many people do not realise that beneficiaries can redirect their entitlement to others. There are several reasons why a beneficiary might redirect their entitlement to others. We will explore some of these reasons later. To redirect their entitlement, the beneficiary uses a Deed of Variation.

What is a Deed of Variation and how does it work?

A Deed of Variation is a document in which a beneficiary redirects their share in the deceased's estate to another person. If the deceased made a Will, the Deed of Variation does not change the terms of the Will. But it does change the distribution of the estate. Where the deceased died intestate, the beneficiary uses a Deed of Variation to redirect their entitlement to the estate to another person.

There are specific requirements to ensure the Deed of Variation is valid:

    • It must be made within 2 years of the date of death;
    • It needs to clearly identify to which part of the estate the Deed of Variation relates;
    • The Deed of Variation must identify who is to benefit;
    • It must be signed by all beneficiaries who are instructing the redistribution; and
    • The Deed of Variation must include a statement that the variation is to be effective for Inheritance Tax (IHT) and Capital Gains (CGT) purposes.

What are the advantages of a Deed of Variation?

1.    Reduce IHT payable

When a beneficiary redirects their entitlement to share in an estate, they can take advantage of certain tax benefits. One of the advantages is to reduce the IHT payable to HMRC.

For instance, the beneficiary might transfer a share in the estate to a charity, which is exempt from IHT. If, for instance, the value of the estate is more than the current IHT threshold of £325,000, then any redirection to a charity will reduce the value of the estate. This means it will reduce the IHT payable. The IHT liability may be eliminated if the redirection reduces the value of the estate to below the IHT threshold.

Using the same example of redirecting a share of the estate to a charity, if that redirection is 10% of the estate or more, the IHT payable on the whole estate is reduced from 40% to 36%. This can result in a significant tax saving in large estates.

Alternatively, the beneficiary may redistribute their share in the estate to their children. Where the estate is liable to IHT then rather than the beneficiary inheriting their share of the estate after IHT has been paid on it and then, when they die leaving their estate to their children, their estate is, again, subject to IHT.  In contrast, a redirection of the estate to the children would mean that IHT would be paid only once.

2.    Make changes to the distribution of the estate

There may be circumstances where the beneficiaries wish to change the way the estate is distributed. This may happen where the Will has an uneven distribution of the deceased’s estate, but the beneficiaries wish to share the estate equally amongst them. Alternatively, where the Will or rules of intestacy direct the estate to be shared amongst several beneficiaries, those beneficiaries may decide that an unequal distribution may be a better option to benefit one or more of their number. This would mean some beneficiaries would receive a higher share and others a lower share.

3.    Pass assets to someone not included in the Will

There may be circumstances where the beneficiaries decide to pass assets to someone not included in the Will or who has no entitlement under the rules of intestacy. That might be, for instance, where a stepchild is left out of the Will and the beneficiaries wish the stepchild to receive a share in the estate.

Alternatively, the beneficiaries may wish to include grandchildren who were born after the Will was made and where there is no provision for them in the Will. In such circumstances, the Deed of Variation will provide for a redistribution of the estate in their favour.

Specialist Executry (Probate) Solicitors, Edinburgh

A Deed of Variation is an excellent means of saving tax, redistributing an estate and including someone who has been omitted. We have covered 3 reasons to use a Deed of Variation, but these are not exhaustive. If you are a beneficiary and wish to explore your options to redistribute the estate of the deceased, please contact us using our contact form or call us on 0131 225 1200.

Murray Beith Murray Partner, Andrew Paterson, heads our Executry group and is also a Partner of the Asset Protection group. At Murray Beith Murray, we're more than just lawyers - we're trusted advisors. We clearly outline the executry process, providing straightforward, practical advice and assistance. Our approach to client service is friendly and responsive, and we operate with the highest standards of integrity and professional expertise.

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