What is a Deed of Variation, and when might you need one?

A fundamental principle of English law is that everybody should be at liberty to leave their Estate to whomever they choose when they die. However, sometimes, the chosen beneficiaries may wish to change their entitlement under the Will. The law permits them to do so in specific circumstances through the use of a Deed of Variation.

What is a Deed of Variation?

A Deed of Variation alters the terms of a Will after the testator (the person who made the Will) has died. It can also be used to change the application of the Intestacy Rules, which dictate how an Estate should be distributed if a person dies without leaving a Will.

You can use a Deed of Variation to redistribute the deceased’s assets, set up a trust, or include additional beneficiaries.

When might you use a Deed of Variation?

There are several reasons why you might choose to enter into a Deed of Variation, including the following:

To distribute the Estate in a more tax-efficient way.

  • To provide for children or grandchildren born after the testator’s death.

  • You don’t need your entire share and would like some of it to benefit somebody else.

  • You would like some of your entitlement to go to charity.

  • To add other beneficiaries who you feel deserve a share of the Estate.

  • To even out the distribution, if some beneficiaries have received more than others.

How do you make a Deed of Variation?

Unsurprisingly, various legal requirements apply to Deeds of Variations. The exact requirements depend on the effects of the Deed, but generally speaking, they include the following:

  • The Deed must be in writing.

  • The Deed must be made within two years of the testator’s death.

  • All beneficiaries who will lose out under the Deed must sign it.

  • The Deed must clearly state the changes made to the distribution of the Estate.

  • If the Deed alters the amount of inheritance tax payable, you must send a copy to HMRC.

  • If the amount of tax payable increases because of the Deed, the executors or administrators must sign it.

  • The Deed must include a statement that the parties signing it intend the variation to be effective for the purposes of inheritance tax and capital gains tax.

  • An independent witness must witness each signature.

Deeds of Variation provide an invaluable opportunity for the beneficiaries under a Will or the Intestacy Rules to redistribute the deceased’s assets. However, your Deed must comply with strict legal rules and requirements to be effective, both legally and for tax purposes. Furthermore, Deeds of Variation can sometimes have unexpected consequences, notably in terms of the tax position, so it’s essential to take advice on the effects of your proposed changes before proceeding.

Can an executor purchase property from an Estate?

When someone dies, they entrust their executor with settling their affairs and distributing their estate in accordance with their wishes. To facilitate this, executors need access to all of the deceased’s assets, including their money and property. The law seeks to protect beneficiaries’ interests by imposing strict legal duties and rules on executors. One such rule is known as ‘the rule against self-dealing’, which applies when executors wish to buy estate property.

What is the rule against self-dealing?

The duties imposed on executors include acting in the beneficiaries’ best interests and not putting themselves in a position where their personal interests conflict with those of the beneficiaries. When an executor wishes to purchase estate property, a clear potential conflict arises. As executor, they must act in the beneficiaries’ best interests and maximise the estate’s value. As a purchaser, it is in their own interests to secure the best possible purchase price for the property. To address this potential issue, the rule against self-dealing prohibits an executor from buying estate property, even at a fair market value.

What are the implications of ignoring the rule against self-dealing?

The implications of ignoring the rule against self-dealing can be severe. The beneficiaries are at liberty to void the transaction at any point in the future, even if they suffered no loss and were initially amenable to the purchase.

How can you avoid the rule against self-dealing?

There are many reasons why an executor may wish to buy estate property. For example, if the executor is the deceased’s child, they might want to buy the family home. There are several ways in which executors can proceed with a purchase without falling foul of the rule against self-dealing. They include the following:

  • Relying on wording in the deceased’s Will: If the Will includes a clause expressly excluding the rule against self-dealing, an executor may be able to purchase estate property. However, the wording must be exceptionally clear and unequivocal, and executors must exercise caution when seeking to rely on such a clause.

  • Seeking the beneficiaries’ ‘informed consent’: If all beneficiaries agree to the purchase, they can approve it by giving their ‘informed consent’. This involves each beneficiary receiving proper legal advice and the parties following the relevant legal procedures.

  • Asking for the Court’s approval: The Court can authorise a sale of estate property to an executor. However, this is not a mere ‘tick-box’ exercise; the Court will decide each case on its facts.

The rule against self-dealing is often overlooked by executors, but its effects can be potent and far-reaching. To ensure compliance, you should always seek expert legal advice before purchasing property belonging to an estate of which you are executor, even if there is a clause in the deceased’s Will purporting to exclude the rule.  

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