Post Death Variations

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    Occasionally the need arises for the beneficiaries and trustees under a Will, or the intestacy rules, to rearrange the dispositions of the property in an estate. This can be to redirect benefits to other members of the family who’s need is greater or for IHT savings.

    Whatever the reason s.142 of the Inheritance Tax Act 1984 provides a solution.

    A gift under a Will or intestacy can be disclaimed (effectively refused and returned to the estate) or varied by Deed with the consent of the beneficiary. Such variations can be ‘read back’ into the Will; the effect being that the deceased is treated as having given the gift to the new receiver rather than it entering the intended beneficiaries hands first. If this was not the case the intended beneficiary would effectively make a gift to the new receiver for IHT purposes and it would be treated as a transfer of value.

    To achieve the desired writing back effect the beneficiary must enter into the variation within two years of the deceased’s death. The original beneficiary can make the variation if he is over 18 and has mental capacity. If the beneficiary is under the age of 18 or lacks capacity then the consent of the Court will be needed for a variation to be effected. Under the Variation of Trust Act 1958 the Court has the power to consent
    on a minor’s behalf but only where the proposed variation is for the benefit of the original beneficiary.

    Where a benefit under a discretionary trust requires variation it is the trustees acting under the terms of the Will who can consent to the variation. An important feature of an effective variation or disclaimer is that it must not be for consideration i.e. the original beneficiary must not receive any benefit for making the variation. A recent case highlighted this point. The deceased’s children and grandchildren were left gifts under his Will which created a substantial IHT liability. The children all executed a deed of disclaimer allowing the spouse to inherit thereby reducing the IHT liability. This is a perfectly acceptable reason for a post death variation however in this case the spouse made a gift to the son of the deceased of £1000 just three days after taking possession of the estate assets. HMRC successfully argued that the variation was executed following an agreement between the parties that the son would receive the gift but avoid the IHT liability.

    The variation was set aside under s.142 (3) (that consideration was received) and IHT in respect of the gifts to children became payable.

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    Matt Walkden Will Writer

    About Matt Walkden

    I am a Professional Will Writer and I offer a small number of other products that complement my Will Writing such as Lasting Power of Attorneys (LPA’s), Fixed Price Estate Administration, often called Probate and some Property Products such as changing a family home from Joint owners to Tenants in Common.

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