Deed of variation and extraneous consideration

Hi, I would be grateful for your thoughts on the following scenario. I am dealing with an estate where the deceased and his long-term partner were unmarried and owned their property as tenants in common. By the terms of the deceased’s Will, the deceased’s share in the property is subject to a life interest in favour of the partner and then passes to the deceased’s adult children from a previous marriage. The partner and children have agreed to enter into a Deed of Variation whereby the children will receive an agreed cash sum in lieu of their father’s interest in the property and then the deceased’s interest in the property will pass absolutely to the partner. My query relates to the fact that, in order to raise the cash sums required to pay the children, the partner needs to use part of the proceeds she has received from two first death level term assurance policies of which she and her partner were joint policyholders. Will this count as extraneous consideration?

I would say yes there is extraneous consideration being provided.

The only consideration allowed under IHTA 1984 s142 in the making of a variation is the making of another variation wrt other property left by will. This does not seem to be the case here.

Malcolm Finney

My understanding is that if the variation directs that the children are given cash sums charged on the property and the property, subject to those payments, is given to the partner, then the subsequent satisfaction of those payments is not treated as “consideration” for the purposes of s.142(3) IHTA 1984, regardless of the source of those funds (in this instance, the partner could obtain a mortgage to discharge the liabilities to the children)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Hi Paul, many thanks for your reply. The property is already in mortgage and this has been taken into account in agreeing the amount of the cash sums to be paid to the children. If the variation directs that the children are given cash sums charged on the property and that the property, subject to those payments, is given to the partner as you suggest, would the partner actually have to obtain a new mortgage to raise the funds to pay the children or is it enough that the cash sums are charged on the property and the partner takes the property subject to those payments? Lisa

Hi Lisa

No the partner does not need to get a new mortgage, I was merely referring to a mortgage as an example of the money to pay the children coming from outside of the estate.

It should be enough that the cash sums due to the children are charged on the property. I suspect the children might want their money once the variation has been signed and understand from your original post that the partner intends to make those payments out of other monies already held.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals