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Post-death planning: deeds of variation vs disclaimers

15 October 2019

Catriona Standingford, managing director of Brand Financial Training, considers the use of deeds of variation vs disclaimers in post-death planning.

First published in the October issue of Professional Paraplanner

Both deeds of variation and disclaimers can be used to vary or redirect assets from a deceased’s person’s estate. For those studying for exams, this is relevant to CII AF1, AF5, J02 or R06 exams.

Here are a few reasons why varying or redirecting assets might be a desirable thing to do:

• To provide for someone who has not been included in a will or who has not been sufficiently provided for
• To save IHT
• To make changes to gifts that were made in a will
• To make changes to how property is owned – from joint tenants to tenants in common

Let’s look at both options.

Deeds of Variation

A deed of variation is a document which allows the beneficiaries of someone’s estate to change the deceased’s will up to two years after they’ve died; although, it’s not just a will that can be re-written; changes can be made under the the laws of intestacy where someone has died without a will.

Example

Imagine that June has died having left her estate to her son Max. Max is already concerned about his own inheritance tax problems so decides to put in place a deed of variation to redirect his inheritance to his own children. Using a deed of variation ensures that Max isn’t treated as having made a gift himself to his children (and therefore avoids the usual need to survive seven years after making a gift) and also avoids worsening his own IHT situation.

Conditions for a Deed of Variation

A deed of variation is essentially post-death planning and should never be thought of as a substitute for pre-death planning. However, they are useful. As well as needing to be done within two years of death, the following conditions also need to be satisfied:

• the document or deed must refer to the will or intestacy being varied
• there must be a statement that the variation is to have effect for IHT
• it must be signed by those involved with the variation
• where the result is that more IHT needs to be paid, the deed must also be signed by the personal representatives
• there must be no consideration involved.

Disclaimers

A disclaimer is different in that it is someone stating that they do not wish to accept an inheritance under a will or intestacy.

The important difference is that for a disclaimer to be valid, the property must not have been accepted by the person. They also have no say as to where the property is to go instead; instead it goes back into the deceased’s estate and is distributed accordingly.

Rules for Disclaimers

The rules for disclaimers to be valid are:

• the property must be disclaimed within 2 years of death
• there must be no consideration
• there must be a statement that the disclaimer is to have effect for IHT (so won’t be treated as a transfer of value).

There doesn’t need to be a formal deed or document drawn up – it can be simply a letter. HMRC provides a useful ‘Instrument of Variation Checklist’ to ensure any variation done by letter meets the requirements of the IHT Act and the Taxation of Chargeable Gains Act.

If the variation means more IHT needs to be paid, then a copy needs to be sent to HMRC within six months of making it, but if there is no change, then HMRC don’t need to see a copy.