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Deed of Variation (DOV)
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Poor planning of your estate may lead to a significant portion of your intended inheritance being claimed by the tax authorities. If your estate is subject to inheritance tax, your executor must pay a 40% tax before passing on the remainder to your loved ones.
What can loved ones do?
Fortunately, there’s a way to address this after someone has passed away. It’s called a Deed of Variation (DOV), a legal document that allows the beneficiaries (like children) to make changes to a Will after the person has died. This means if someone didn’t write their Will in a tax-efficient way, forgot to include someone, or didn’t write a Will at all, beneficiaries can redirect the inheritance money to others.
A deed of variation
A deed of variation is an instrument by which one or more beneficiaries of a deceased person’s estate voluntarily surrender their entitlements under the deceased’s Will or the intestacy rules in favour of someone else.
If the deed of variation is made within two years of the deceased’s death and meets other conditions (indicated below), it is considered for inheritance tax and for capital gains tax, as if it had been made by the deceased.
- It can help reduce the taxes that the estate would otherwise have to pay, especially if the person’s wishes in the will weren’t as tax efficient as they could have been.
- By using a Deed of Variation, your parent might save potential future inheritance taxes by skipping a generation.
- The effect of the Deed of Variation is that the terms of the document are regarded as being written back into the Will as if the new gift had been made by the deceased.
In order to be effective for inheritance tax purposes, a deed of variation must:
- It must be done within two years of the testator passing away.
- Should be in writing and signed by all beneficiaries who ‘lose out’ because of the variation.
- Must include a statement for inheritance tax and capital gains tax purposes in the deed.
- Clearly, identify the part of the estate being varied and who is to benefit from the variation.
- If the variation is in favour of charity, it is only effective if it is shown the relevant charity is aware of the variation.
- In the case of a minor beneficiary, a court order is necessary to vary the entitlement.
An individual who does not want to benefit from an estate can refuse his interest in it completely. That is, he can disclaim it, provided he has not accepted any benefit from it before disclaiming.
How can we help?
For further information and to discuss the appropriateness of any Deed of Variation, please contact us.
Get in touch with us today.
Disclaimer: The information on the Apex Estate Planners Ltd website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties express or implied
