A Deed of Variation (sometimes referred to as a family arrangement) is a legal document that allows beneficiaries of a deceased person’s estate to modify the terms of the will, or, if there is no will, to change the way the estate is distributed under intestacy rules. This tool can be extremely useful in certain situations where the beneficiaries feel that the will doesn’t accurately reflect the deceased’s intentions, or when changes need to be made for financial or practical reasons.
Common reasons for creating a Deed of Variation include tax efficiency, addressing unfair distributions, or providing for individuals who were left out of the will. However, while it offers significant flexibility in estate planning and inheritance matters, a Deed of Variation is not without its challenges. It may raise complications, disagreements, and legal complexities among the involved parties. Furthermore, it’s essential to consider that making changes after someone’s death can be a sensitive and emotional process, requiring careful thought and collaboration among the beneficiaries.
In this article, we will explore 10 pros and 10 cons of using a Deed of Variation. By understanding the advantages and drawbacks, you can make an informed decision about whether pursuing a Deed of Variation is the right choice for your family’s estate planning needs.
Pros Of A Deed Of Variation
1. Flexibility In Estate Distribution
One of the biggest advantages of a Deed of Variation is the flexibility it provides in altering how an estate is distributed. If a will is outdated, incomplete, or does not fairly reflect the deceased’s wishes, the beneficiaries can agree to redistribute the estate to better suit the current circumstances. This is particularly useful when family dynamics or financial situations have changed since the will was written.
2. Potential For Tax Benefits
A key reason many families opt for a Deed of Variation is the potential for tax savings. By rearranging the distribution of an estate, beneficiaries can reduce or eliminate the Inheritance Tax (IHT) burden. For instance, a Deed of Variation can redirect assets to individuals or trusts that qualify for exemptions or lower tax rates, which can significantly reduce the overall tax liability on the estate.
3. Addressing Unfair Distributions
In some cases, a will may not distribute assets in a way that seems fair to all beneficiaries. A Deed of Variation allows the beneficiaries to amend the distribution, ensuring that family members who were unintentionally excluded or not adequately provided for can receive a more equitable share of the estate. This can help avoid potential family disputes and feelings of resentment.
4. Providing For New Beneficiaries
If a will was written a long time ago, it may not account for newer family members, such as grandchildren or other dependents who were born after the will was created. A Deed of Variation can add these individuals as beneficiaries, ensuring that they are provided for according to the family’s current wishes. This is particularly beneficial in ensuring that vulnerable or dependent family members receive necessary financial support.
5. Avoiding Costly Litigation
Challenging a will through the courts can be a costly and time-consuming process. A Deed of Variation offers a more straightforward and amicable solution, allowing beneficiaries to resolve disputes or issues within the family without resorting to litigation. By reaching an agreement among the beneficiaries, the family can avoid the legal fees and delays associated with a formal court challenge.
6. Simplifying Complex Estates
In some cases, estates can be complicated due to the inclusion of multiple assets, properties, or business interests. A Deed of Variation can simplify these complex estates by allowing the beneficiaries to agree on a distribution plan that is more practical and manageable. This can help avoid complications, such as the need to sell assets to pay taxes or dividing property among multiple individuals in a way that creates logistical challenges.
7. Preserving Family Relationships
Disputes over inheritance can strain or even destroy family relationships. A Deed of Variation allows family members to work together to achieve a mutually acceptable outcome, preserving harmony and maintaining strong family ties. By providing a platform for discussion and compromise, the deed can help families avoid the bitterness and division that often arise in contentious inheritance cases.
8. Providing For Charitable Donations
A Deed of Variation allows beneficiaries to allocate part of the estate to charity, even if the original will did not include such provisions. Charitable donations can reduce the tax liability of the estate and allow the family to support causes that were important to the deceased. Additionally, charitable giving can enhance the legacy of the deceased by providing lasting contributions to worthwhile causes.
9. Protecting Beneficiaries From Creditors
A Deed of Variation can be used to direct assets to trusts or other vehicles that protect beneficiaries from creditors. This is particularly useful in cases where a beneficiary has financial troubles or is vulnerable to legal claims. By placing the assets in a protective trust, the family can ensure that the inheritance is safeguarded from creditors while still providing for the beneficiary’s long-term needs.
10. Adjusting For Changing Tax Laws
Tax laws, particularly those related to Inheritance Tax, are subject to change over time. A Deed of Variation provides the opportunity to adjust an estate’s distribution to take advantage of current tax laws, potentially saving the beneficiaries substantial sums in taxes. This flexibility allows families to adapt to changes in legislation that may not have been anticipated when the original will was drafted.
Cons Of A Deed Of Variation
1. Requires Agreement Of All Beneficiaries
One of the biggest challenges of executing a Deed of Variation is that it requires the consent of all affected beneficiaries. If even one beneficiary disagrees with the proposed changes, the deed cannot proceed. This can lead to disagreements, delays, and potential conflict among family members, especially in cases where there are complex or sensitive issues at play.
2. Potential For Disagreements
Even if all beneficiaries ultimately agree to the changes, the process of negotiating a Deed of Variation can be contentious. Family members may have different ideas about how the estate should be distributed, leading to disputes and difficult conversations. These disagreements can strain relationships and create lasting divisions among beneficiaries.
3. Limited Time Frame For Tax Benefits
To qualify for certain tax benefits, a Deed of Variation must be executed within two years of the deceased’s death. If this deadline is missed, the beneficiaries lose the ability to make tax-efficient changes to the estate’s distribution. This time constraint can create pressure to act quickly, which may not always align with the family’s emotional readiness to address the estate.
4. Legal And Administrative Costs
While a Deed of Variation is often more cost-effective than going to court to challenge a will, it still involves legal fees and administrative costs. Beneficiaries may need to hire solicitors to draft and execute the deed, and the process may require tax advice to ensure compliance with relevant laws. These costs can add up, particularly if the estate is complex or if the negotiations are lengthy.
5. Emotional And Psychological Impact
Changing the terms of a will after a loved one has passed away can be an emotionally charged process. Some family members may feel uncomfortable altering the deceased’s final wishes, even if the changes are justified. This emotional weight can lead to feelings of guilt, unease, or conflict among the beneficiaries, especially if they feel pressured to agree to changes they are not fully comfortable with.
6. Possible Complications With Creditors
If the deceased had outstanding debts or creditors, a Deed of Variation could complicate the process of settling the estate. Creditors may object to changes in the distribution if they feel it negatively impacts their ability to recover the debts owed to them. In some cases, these complications could delay the estate’s administration or lead to legal challenges from creditors.
7. Risk Of Future Disputes
While a Deed of Variation is intended to resolve disputes over an estate’s distribution, it may also create new areas of conflict. For example, if one beneficiary feels they were unfairly pressured into agreeing to the changes, they may challenge the deed later on. Additionally, future beneficiaries (such as children or grandchildren) could dispute the terms of the deed if they believe it negatively impacted their inheritance.
8. Can’t Override Certain Legal Provisions
A Deed of Variation can’t be used to override certain legal provisions, such as those protecting dependent family members or spouses under inheritance laws. For example, if a spouse or dependent is entitled to a specific portion of the estate under the law, a Deed of Variation cannot reduce their share without their explicit consent. This legal limitation can restrict the flexibility of the deed in certain cases.
9. May Create Tax Issues For Beneficiaries
While a Deed of Variation can be used to reduce overall tax liability, it can also create tax complications for individual beneficiaries. Depending on how the assets are redistributed, some beneficiaries may end up with a higher tax burden or could face unexpected tax liabilities, particularly if they receive assets that were not originally allocated to them. It’s essential for beneficiaries to seek professional tax advice before agreeing to any changes.
10. Delays In Settling The Estate
The process of negotiating and executing a Deed of Variation can delay the final distribution of the estate. If the negotiations are lengthy or if disagreements arise, it may take months (or even longer) to finalize the deed. This can be frustrating for beneficiaries who are eager to settle the estate and move forward. In some cases, delays caused by the deed can lead to further complications, such as legal challenges or additional administrative costs.
Conclusion
A Deed of Variation offers a flexible and practical solution for families looking to adjust the distribution of an estate after a loved one’s death. It provides significant advantages, including potential tax savings, the ability to address unfair distributions, and the opportunity to provide for new beneficiaries. For many families, a Deed of Variation can help resolve disputes and ensure that the estate is distributed in a way that reflects current family circumstances.
However, a Deed of Variation also comes with challenges. It requires the agreement of all beneficiaries, may lead to emotional strain, and can involve legal costs. In addition, the time constraints and potential tax implications must be carefully considered before proceeding.
Ultimately, whether a Deed of Variation is the right choice depends on your specific family situation and estate planning needs. By understanding both the pros and cons, you can make an informed decision that benefits everyone involved, ensuring that the estate is managed efficiently and fairly. It is highly advisable to consult with legal and financial professionals to guide you through the process and ensure that the deed is executed properly.