Understanding Intestacy (Part 2): What to do with an intestate estate and Deeds of Variation?

The purpose of a Deed of Variation

A beneficiary can use a Deed of Variation to give away the whole or part of their entitlement to someone else, including to someone who would not otherwise benefit from the estate. They may also want to put their entitlement into a trust or make a gift to charity.

A beneficiary may want to use a Deed of Variation if they feel they do not need the inheritance and would prefer someone else, such as their children, to inherit in their place. They may also want to share their entitlement with someone who does not benefit at all under the intestacy rules, for example, an unmarried partner or close friend of the deceased.

Beneficiaries might also be thinking of their own estate planning arrangements and prefer to divert the inheritance away from their own estate. This may be to limit their inheritance tax liability or to preserve certain entitlements. For example, someone planning to buy their first home may be prevented from claiming First Time Buyers’ Relief from Stamp Duty Land Tax (or Welsh Land Transaction Tax in Wales) if they inherit an interest in a property. They may want to vary their inheritance to give the property interest away and so retain their ability to claim First Time Buyers’ Relief which might be worth more to them overall.

Beneficiaries must be careful not to reduce their assets for the purpose of maximising the benefits they can receive from the state or minimising the amount they contribute to care fees. Doing so is known as a willing deprivation of assets and is not permitted by law. This is different from legitimately improving the tax efficiency of your estate or utilising available reliefs and exemptions.

A Deed of Variation is also commonly used to distribute assets in a way that minimises the Inheritance Tax or Capital Gains Tax liability of the deceased person’s estate, by making use of tax reliefs or exemptions.

Limitations

Whilst a Deed of Variation is a helpful tool in these situations, it does have limitations. A beneficiary can only make changes to their own entitlement. It cannot be used  to prevent someone inheriting unless they are agreeable and willing to enter into the Deed, irrespective of the perceived fairness or unfairness of their inheritance. There is nothing a family member can do to stop a relative, perhaps who has not seen the deceased for many years, receiving a share of the estate ahead of those with a closer relationship to the deceased if that is what the intestacy rules provide and the person inheriting does not want to alter the position.

A Deed of Variation also cannot change who is entitled to take out the Grant of Letters of Administration (the equivalent of a Grant of Probate in an intestacy). There is a hierarchal list of who an apply for the Grant, which largely reflects the list of who will inherit. To be able to apply for a Grant yourself, you must show there is no one in any of the groups above you. Beneficiaries unhappy with the administrator must make a separate application to the court to remove someone entitled to take out the Grant and appoint someone in their place.

The only way to have complete control of who inherits an estate and who is legally responsible for its administration is to prepare a Will during your lifetime.

How can Blake Morgan help?

It is vital that a beneficiary seeks specialist advice before entering into a Deed of Variation, to ensure there are no unintended consequences and that it complies with formal requirements. It is always preferable that someone makes a Will and reviews it regularly to avoid family members being left in this position. Our specialists would be pleased to assist you in preparing a Will or providing advice if you are the administrator or beneficiary under an intestacy.