Inheritance Assets and Considering a Deed of Variation

Have you recently inherited assets from a family member or a friend who has recently passed away?  We appreciate that there are circumstances where you might not necessarily wish to receive your inheritance and may wish to redirect it elsewhere.  Some of the common reasons why are as follows:

1. Honouring Updated Wishes:

You know/suspect that the deceased’s wishes had changed since they made their Will some years prior and you wish to honour what you believe to be their final wishes. A Deed of Variation is an ideal way to do this.

1. Supporting Others:

You would like to help other family members/friends/charitable organisations by passing on wealth to them. 

• Inheritance Tax Concerns

You expect that Inheritance Tax will be payable on your death due to the size of your estate before receiving the legacy.  You therefore do not wish to increase your net worth further.   The substitute beneficiaries on the other hand might not have the same issue with Inheritance Tax. 

• Tax on the Testator’s Estate

Redirecting money can sometimes have a significant impact on the overall tax liability of an estate particularly if it is given to a charity.

If a Testator leaves at least 10% of their estate to charitable organisations then any Inheritance Tax on the rest of the estate can be reduced from 40% down to 36% under the current Rules.

Understanding the Deed of Variation

Usually, when you make a lifetime gift there can be Inheritance Tax consequences if you die within 7 years of doing so.   To prevent potential adverse tax consequences we would advise that you prepare a Deed of Variation. The benefit of executing a Deed of Variation is that the usual 7 year rule does not apply.   A Deed of Variation is a legal document which must be completed within 2 years of the death of the person you inherited the legacy from.  

Benefits of a Deed of Variation

 There are certain formalities to be complied with to ensure tax efficiency.  It is therefore advisable that the document is prepared by a qualified lawyer. The effect can be the same or similar to rewriting the Testator’s Will. It is important to make sure the document is drafted accurately and incorporates all the necessary tax statements to make it effective.  

Giving Part of your Inheritance Away

 You do not have to give all your inheritance away. You may only want to redirect part of it. For example, you may have been a left a share of residue of an estate and you just want to redirect a fixed legacy of a certain amount to your children or family while retaining the balance. Deeds of Variation can cover all these situations if correctly drafted.

Professional Guidance

Here at Ware & Kay we have extensive knowledge of the rules relating to Deeds of Variation and Inheritance Tax and we are happy to guide you in this respect.

If you need further information or assistance, please do not hesitate to contact us. We are here to help you make informed decisions about your inheritance and ensure that your actions are both legally sound and tax-efficient. Call Emma Elwess, Lynne Smith or Laura Carter onMalton 01653 692247 or email emma.elwess@warekay.co.uk, lynne.smith@warekay.co.uk or laura.carter@warekay.co.uk.