Inheritance tax planning after a death

05 Nov 2020

Jonathon Jay

Associate Director - Wealth Planning

Changing a will to manage your own estate

In the ever-growing intergenerational transfer of wealth in the UK, it is quite common for those benefitting from estates to already have sizeable estates in their own right.  This can create a considerable exacerbation of the beneficiary’s personal Inheritance Tax (IHT) position unless the correct actions are taken.

Changing a Will after a death

It is typically perceived that the instructions set out in someone’s Will are irrevocable and binding. This can discourage beneficiaries from taking action, even if receiving their inheritance will lead their own estate to exceed the IHT threshold.
 
Current legislation around wills and their instructions allow for a very useful tool, known as a ‘Deed of Variation’.  This allows beneficiaries to vary the will of the donor, to bypass themselves either directly to other beneficiaries, or into a trust arrangement, creating a Will trust if appropriate.

Reducing IHT through a Deed of Variation

A Deed of Variation can be a very powerful tool if used correctly, because it is varied in such a way that the initial beneficiary never inherited the assets, thus not adding to their own estate and IHT  position.  This can lead to considerable tax savings (40%) on those assets.
 
There are some key rules as follows:
 
  1. The Deed of Variation must be carried out within two years of the death of the donor
  2. It must be in writing
  3. All beneficiaries affected must be in agreement and must be over the age of 18 years old
  4. It must clearly state which parts of the estate are being altered and who will benefit
This is a complex area of IHT planning and a number of factors should be considered before agreeing how to proceed.  If you feel that you need some advice on this area or indeed, any other area of IHT planning, then please do not hesitate to contact our advice team.

About the author

To contact or read more about Jonathon Jay, visit his biography here.

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