Making a Will should be a key step in everyone’s financial planning. Deciding who will inherit your wealth when you have no further use for it is a serious responsibility. You will want to get it right for those you leave behind.
But circumstances and families change, and sometimes a Will which seemed ideal for all concerned when it was drawn up means problems for beneficiaries when the time comes to execute it.
At Continuum we are looking at why a Will does not have to be set in stone.
The deed of variation
A last Will and Testament is a solemn document designed to express how your wealth – your property, cash investments and personal possessions will be divided up after your death.
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But what might seem the ideal arrangement to the writer of a Will may not be so perfect for the beneficiaries when the time comes.
Children who once needed financial help and were named as the beneficiaries may have made their way in the world. They might have children of their own, undreamt of when the Will was drawn up, who could use some family support to buy that first home or cover the costs of education.
Couples may have split up, married again and had second families.
Your money may no longer be headed in the right direction, and you could be leaving your loved ones with tax problems if they try to sort things out themselves once they have been distributed.
Rather than run the risk of part of your wealth going to the taxman instead of those you care about, your beneficiaries may be able to use a deed of variation. This is a legal procedure to alter who benefits from a Will, with the most common reason being to reduce inheritance tax bills and help younger generations.
There are limits of course. A Deed of Variation doesn’t give a person a free hand to do what they like with someone else’s Will. You can’t use it, for example, to remove a brother you have fallen out with from an inheritance and redirect their share to you. Beneficiaries have to agree to change the terms of a Will, and the Deed of Variation has to be written within two years of the death and signed by all the executors and beneficiaries of the estate. If everyone isn’t agreed on the amendments the Will cannot be changed.
How might you use a Deed of Variation?
One of the most common reasons for using a Deed of Variation is to allow an estate to skip a generation. Changing demographics have meant that preparing a Deed of Variation is becoming more popular. People are dying older, which means that they will not inherit from their elderly parents until they are themselves in their 50s and 60s. By that time, they are likely to often be financially comfortable, and in no real need of an inheritance.
Talking to a Continuum expert could help you arrange the intergenerational financial planning you need. Call us now to arrange a video appointment.
Their children, however, may be. Parents could simply pass what they have inherited straight onto their children without a Deed of Variation, but if they were to die within the next seven years, it may leave their offspring with an inheritance tax bill. With a Deed that danger is averted.
To arrange a Deed of Variation you simply need to write a letter explaining the changes you want to make and keep it with the Will and the “instrument of variation” checklist that you can find at Gov.uk. As long as none of the beneficiaries of the Will is under 18, the Deed should be legally binding.
Getting some help
To discuss writing your Will – or arranging a Deed of Variation, it is important to understand the tax implications. At Continuum we can help you avoid the pitfalls and keep more of your wealth out of reach of the taxman. We can even help provide solutions where a Deed of Variation may be required.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable estate planning or Inheritance Tax strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate estate planning, Wills, tax and trust advice.