Deed of Variation - The Dawson Family

Where the beneficiaries of a legacy in a Will wish to redirect the gift in favour of someone else.

A Deed of Variation (also known as a Deed of Family Arrangement) enables beneficiaries of the estate of a deceased to redirect any gift they have received in a Will, in part or in whole, to other people.  Once signed, the redirection under the Deed of Variation will be treated as having been under the Will from the date of death of the deceased.

Our Client

Our client, Mr Dawson died leaving a Will in which he left a legacy of £325,000 to his adult children and the rest of his estate to his wife, Mrs Dawson. This Will was drafted pre-2007 when tax changes were introduced so that a “Nil Rate Band” (the amount up to which an estate has no Inheritance Tax to pay – currently £325,000) wasn’t lost on first death but could pass across to a spouse’s estate if it wasn’t fully used up on the first spouse’s death.

How the Deed of Variation helped the Dawson Family

Mr Dawson’s children decided that they wanted their Mother to receive the entire estate and had it not been for the tax position at the time the Will was drafted, this is what their father would have wanted. A Deed of Variation was drafted whereby the adult children varied their entitlement to the legacy of £325,000 and instead redirected this to their mother.  She then received the entire estate, free of Inheritance Tax.

As Mrs Dawson received the entire estate from her husband, on her death there will potentially be two nil rate bands available i.e. £650,000 before which IHT is payable.

Mrs Dawson is now able to review at her own lifetime tax planning and may decide to make lifetime gifts to her children, known as potentially exempt transfers (PET’s).  Should she survive 7 years from the date of those gifts, they will reduce the inheritance tax exposure on her death. 

Conversely, she may decide she needs all the funds of the assets for care or other expenses, but the variation has enabled Mrs Dawson to retain control and she can decide how she wishes to proceed.

You may also be interested to know

• It is always advisable to review your Will whenever there is a change in the family dynamics, which is usually due to a birth, death, marriage or divorce. If the Will is still suitable, then review the position at least every 5 years against the most up to date tax position. 
• There are some options available even after death by using Deeds of Variation so it is always worth obtaining advice on this as early as possible, as there are statutory time limits imposed on any variation of an estate.
• Please feel free to contact us to discuss this further on info@nsslegal.co.uk