The Deed must be in writing and made within two years of the date of death to be effective for tax purposes. When would you consider doing this?

Take the following example. Mary and Stanley make Wills in 1985 leaving everything to each other. If they have both died, their Wills provide that everything will go to their only child, Alan aged 23 at the time the Wills are made. Stanley dies in 2000 and his entire estate passes to his wife Mary. Mary does not change her Will when Stanley dies as she knows that it already provides that everything will go to their son Alan.

Mary dies in 2016 leaving an estate worth £500,000. By that time Alan is aged 54, a widower with two children; Rita aged 28 and George aged 24. Rita is about to get married and start a family and George is looking to buy a house. Alan’s own estate is worth £600,000. If Alan inherits from his mother’s estate, the value of his estate will increase to £1.1 million and leave him with a potentially significant inheritance tax liability on his death.

So, what should Alan do? He doesn’t need his mother’s inheritance and is quite happy to pass this to his children. Alan could inherit from his mother’s estate and gift his inheritance to his children as a potentially exempt transfer from inheritance tax; but, if he dies within 7 years of making the gift, the value of it is brought back into his estate for inheritance tax purposes and taxed accordingly. The best option is for Alan to enter into a Deed of Variation to his mother’s Will. He can then ensure that the inheritance passes directly from his mother to his children without any worry of needing to survive for 7 years because the effect of the Deed of Variation is to read the gift back into the Will and deem it to be a gift direct from Mary to her grandchildren.

The above is a simple example. It is important to take legal advice before entering into any documentation that could affect your legal entitlement under a Will.

For help and advice in relation to this matter, please contact Maxine Heppenstall via msh@walkerfoster.com or 01943 609969.