Many people believe that if you make a will and then die, and the will is perfectly valid, that your estate will be distributed according to your wishes. That is not necessarily the case, as your will, under certain circumstances, can be changed after your death. Even if you do not have a will, and die intestate, your estate path can also be changed, effectively by writing a will for you after your death.
If this is the case, then how does the testator or will writer make sure that his or her assets are going to go where they want them to go, without let or hindrance? There are also other ways to get at estate assets – especially if a non-beneficiary feels that he should be entitled to assets or income from the deceased and didn’t get any when he passed away, where you may have a claim for dependency; or if a relative who didn’t inherit, by taking Court action.
However, the simplest way to change a will after death is by a post death deed of variation.
Post-death deeds of variation
These can be made within two years of the date of death, whether there was a will, or on intestacy. The will is effectively re-written to make changes such as changing or removing a beneficiary, or to use inheritance tax (IHT) exemptions not utilised before. The variation must be signed by all the people who would lose out because of it, and it may affect the interests of children or unborn beneficiaries. In that case, you may then need Court approval (a parent’s signature for a child is not enough).
All beneficiaries must be aged over 18 and must agree. Potential beneficiaries must also agree to the variation.
You can change a will to:
- reduce the amount of IHT and/or capital gains tax (CGT) payable (if applicable);
- provide for someone left out of a will;
- bequeath the IHT nil rate band;
- use the unused portion of the nil rate band on the first of a married couple/civil partnership to die;
- clear up any uncertainty over a will;
- move the deceased’s assets into trust;
- take account of the differences in the personal finances of the beneficiaries; or
- pass an inheritance on to the next generation (as the current beneficiary may themselves have an IHT problem, for example).
HMRC have a checklist form (IOV2) to work out if a variation to a will meets all the necessary legal requirements for the Inheritance Tax Act 1984 and Taxation of Chargeable Gains Act 1992 (www.gov.uk/government/publications/inheritance-tax-instrument-of-variation-checklist-iov2).
Effect of a variation
The effect of a variation is that it is effectively backdated to the date of death. IHT is calculated taking account of the variation being made. For CGT purposes, the variation is not a disposal, and the new beneficiaries are treated as if they acquired the assets at the date of death and at the agreed death value.
The variation must clearly identify the parts of the estate being varied and who is to benefit; contain a stamp duty certificate if stocks or shares are involved; and a statement intending it to be used for tax purposes if IHT and/or CGT is to be saved.
The future
The government announced (in summer Budget 2015) that it is to carry out a review into IHT avoidance through deeds of variation. It feels that using deeds of variation may be a form of avoiding IHT.
Practical Tip:
To avoid your will being changed after death, consider trusts for your assets. These can include ‘by-pass trusts’ that skip a generation.
Update your will on a regular basis – there have been many changes to the tax laws that may affect you since you drafted it. Your circumstances may have changed, such as the death of a spouse or a divorce. Wills are important and should be updated regularly. If not, others may do it for you after you have died.
