We all know the saying that there is nothing more certain in life than death and taxes, but can you avoid paying inheritance tax after someone has died?
The quick answer is yes. You can alter someone’s will by means of a deed of variation within two years of their death.
What is a ‘deed of variation’?
A deed of variation (DOV) – is a legal document usually drawn up by a solicitor that allows you (if you are the beneficiary of an estate) to make changes to a will, in the name of the deceased, after their death.
A deed of variation allows you to alter a will that has not been written in the most tax-efficient way to divert money or assets to another party or parties. For example, if you were to inherit an amount that will take your own estate over £325,000 – the personal allowance above which inheritance tax is paid – – you can alter the deceased’s will so that money you stand to inherit passes directly to other beneficiaries – such as children or grandchildren – reducing or eliminating the amount of tax you would otherwise have to pay later.
You may also want to gift some of the inheritance to charity. If you gift 10 per cent of the overall estate to charity, the rate of IHT you would pay is reduced by 4 percentage points to 36pc and all donations are tax free.
You can also gift up to £325,000 into a trust before any tax is due, as long as you survive the gift for seven years or more.
Deed of Variation what you need to know
You have two years from the date of death to draw up a DOV.
All beneficiaries must agree, and all executors and beneficiaries of the estate must sign the deed of variation.
You can draw up a DOV before or after a probate is granted.
As long as all beneficiaries and executors agree you can redirect your inheritance to anyone you wish, even if they are not named in the will.
Although you may be the one deciding what changes to make, this is done in the name of the deceased, as if they were making the changes themselves.
If the variation affects someone under the age of 18, you will need court approval before you can make the changes.
What if there is no will?
When someone dies intestate – without a will – their estate is passed on to their next of kin, usually a spouse or other immediate family member, in line with the rules of intestacy. This can often exclude people who played a large part in the deceased’s life. Even if the deceased left no will, you can make a deed of variation to allow those not covered by the rules of intestacy such as unmarried partners, step-children, etc to inherit from the deceased.
If you wish to make a deed of variation, contact us on 0704 532890 or firstname.lastname@example.org