1. What is a Deed of Variation ?
It’s a very versatile and important legal document which we prepare to allow you to redirect any assets that you inherit, within two years of a person dying.
2. Why would I do this?
Although it may sound unlikely that anyone would want to ‘give away’ an inheritance, if you want to try and save inheritance tax that may be paid on your own death, a Deed of Variation may help. You might choose to redirect your inheritance into a Discretionary Trust (a flexible trust with more than one beneficiary), then you will still be able to benefit from both the capital and income and your beneficiaries will not be taxed on the capital when you die. Some Deeds of Variation give assets to a surviving spouse or charity and inheritance tax may be saved this way too. Sometimes Deeds of Variation are also used because a Will is old and was not reviewed and family situations have changed in the meantime making the Will terms unsuitable. They are also used where someone dies without a Will and everyone agrees that the Intestacy Rules do not create the best outcome.
3. Why is a Trust better than me having the money outright?
It can mean that you as the original beneficiary can enjoy the money and that it will not be taxed again as part of your estate when you die. It also creates a pot of money for your family to use, without it being part of their own estate for inheritance tax. It can also be used for other asset protection reasons e.g. concerns regarding childrens’ marriages or their ability to go wild with the money rather than doing something sensible – like paying off their mortgage, or overcome their inability to save for a deposit in the first place!
4. Are there any disadvantages?
It is important that all factors are considered and every case is different. We will carefully review your individual circumstances and give you clear advice about the best way forward. Generally the opportunity to do a Deed of Variation is considered to be a major tax planning advantage. It should always be considered when you inherit money.
5. How long does it take?
You have two years from the date when someone dies to complete a Deed of Variation. You should allow yourself some time to think carefully about your own needs and wishes before making a decision.
Once we are happy that you are settled in your wishes and that you understand your options, a Deed of Variation can usually be prepared quite quickly but please don’t leave things to the last minute as it is never a good idea to rush things. It can take a while to deal with solicitor/ client file opening formalities – we need to understand your circumstances, the background, review other documents, check your ID etc. so ideally you will allow a minimum of a couple of months for the work to be completed. It will be more straightforward if you are already our client and we have been helping you with the estate administration.
6. How much does it cost?
If you ask us to deal with a Deed of Variation as part of an estate that we are already helping you with then generally the likely legal fees will be between £795 and £995 plus VAT. Creating a Discretionary Trust in a Deed of Variation may involve additional fees of approximately £265 plus VAT. When you think that a Deed of Variation may save thousands of pounds in inheritance tax in the future and make things easier for your family, the legal fees represent excellent value. If you are a new client to our firm and you would like advice about a Deed of variation in isolation of any other legal work then there are likely to be additional legal fees of £295 plus VAT. Legal fees depend upon all of the circumstances and may be more or less than the examples given above.
Mary and David Jones both die leaving their only son Bill £325,000. Bill and his wife Jane are already retired and they have house worth £450,000 and savings and investments of £200,000. Their children Thomas and Rachel are both married, working hard, have young children, large mortgages and no spare money.
Bill spends £1,260 plus VAT with us to do a Deed of Variation setting up a flexible Discretionary Trust naming himself, his wife, his two children and his grandchildren as potential beneficiaries.
Jane dies and then Bill dies. The £325,000 in the Trust created by the Deed of Variation is not included in Bill’s estate for tax thereby saving £130,000 in inheritance tax.
Bill and Jane had enjoyed the Trust while they were alive and now with the tax saving Thomas and Rachel can each reduce their mortgages by £65,000. Thank you Dad.