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Death:
Deed of variation

Whether someone dies testate (i.e. with a valid will) or intestate (without a valid will) the beneficiaries of the estate can execute a Deed of Variation within two years of the date of death to change how the assets are shared out.

The most common use of a Deed of Variation is where the first spouse to die leaves everything to the surviving spouse which effectively wastes his or her inheritance tax nil rate band. The surviving spouse then owns all of his or her own estate together with that inherited from the deceased spouse, but has only one nil rate band to use on his or her own death.

A Deed of Variation can redirect some (or all) of the assets to other family members or to trusts, usually sufficient to utilise the inheritance tax nil rate band or to reduce the value of the second estate below the level of the inheritance tax nil rate band.

It should be noted that the Deed of Variation must result in real changes in the ownership and management of the assets in order to be effective. It is not sufficient to simply transfer the assets on paper, for example to the children, but whilst they continue to be used exclusively by the original beneficiary, for example the spouse. It is also important that there is no element of reciprocity whereby assets varied under a Deed of Variation, for example from the children to the surviving spouse to benefit from the spousal exemption, are then gifted back to the original beneficiaries.

It is possible to disclaim a bequest under a will, in which case it reverts back to the estate, to be dealt with under the remaining terms of the will. Again it must be a real disclaimer with no element of reciprocity.