Deed of Variation to remove the exclusion of a jurisdiction

Trusts Discussion
1

Background:

I act for the Executors of a very wealthy UK domiciled individual (domicile is not in dispute). Pre-death they made an English Will, expressly excluding their assets in 2 countries where they held extensive assets (tens of millions) - as he intended to make separate Wills. They died suddenly without executing the new Wills so the assets in the 2 excluded jurisdictions now pass under the intestacy laws in those countries. The English Will contains 2 trusts, a BPR discretionary trust (he died before the new rules came into effect) and a life interest trust for the spouse - as such it is tax efficient.

In one of those countries (a British overseas territory), Deeds of Variation are accepted and that is the route that the family wish to follow - so the devolution of the assets will effectively follow the English Will. A lawyer in that territory is dealing with the Deed of variation and Probate Application and I will report the assets and annexe a copy of the Deed of Variation to the IHT forms.

In the other country, there is no concept of Deeds of Variation and we are looking at a very large IHT bill as a result (no IHT equivalent in that country). The overseas lawyer has asked us if we can use a Deed of Variation of the English Will to remove the exclusion of that country - they say that their probate registry will then ‘re-seal’ the English Grant.

I am not directly instructed in the overseas elements except in so far as the reporting of those assets for IHT - which would be many millions if the intestacy can’t be over-ridden.

The question:

My understanding is that Deeds of Variation, which are effectively tax-instruments, are only able to re-direct assets already covered by a Will / subject to an English intestacy so while they can often be used to re-direct overseas assets covered by an English Will they cannot be used to import assets into the Will that were not previously covered by it - ie to take away the intestacy in the foreign jurisdiction and import those assets to be governed by the English Will. Am I correct?

Even if we could ‘import the assets’ for tax purposes, I cannot find any source that states that the English Probate Registry would prove an English Will plus Deed of Variation ie to remove the exclusion of assets in that nation from the face of the Grant. Without that the country in question will not reseal the English Grant and the full intestacy process will be followed.

The Executors and Family are adamant that ‘there must be a way to import the overseas assets into the English Will’ but I just can’t see it. Even if we can use an English Deed of Variation to re-direct the foreign inheritance, for UK IHT purposes, this won’t change the Grant of Probate which will state that the assets in that nation are excluded. As such the foreign Registry won’t ‘re-seal’ it.

My strong recommendation has been to instruct a dual-qualified lawyer for this country but there is reluctance and I need to be able to show, definitively, that the Deed of Variation to remove the exclusion from the face of the Grant or, alternatively, that we can do so. Has anyone experienced such a scenario or can you offer guidance or direct me to appropriate resources? Any guidance would be gratefully received.

2

I think this should be perfectly possible if you forget about “importing” the foreign assets.

The foreign asses are presumably passing under intestacy rules. All that is required is an agreement between the parties that the assets should be distributed between them in a different manner and incorporating elections under s.142 and 62(6). That could be in any appropriate local legal form or, potentially, an English law Deed of Variation. It could provide that the assets should be held on the trusts established by the will or on similar terms acceptable in the local jurisdiction (e.g. trusts may be unhelpful if the assets are land and the local jurisdiction does not recognise trusts).

The elections will have no effect for local taxes so you would need to be aware of the local tax implications of the agreement, where they may be treated as gifts and taxed as such.

I agree that the document may not affect the persons able to administer the estate and it would be odd if the local jurisdiction recognised a will that excluded it, just because the heirs agreed it should. If the administrators can’t be changed by some form of agreement under local law then the default persons under local law would have to administer the estate but in accordance with the terms that the heirs under an intestacy have all agreed.

3

I believe that (as usual!) Andrew Goodman is correct. Our experience is that the family need to look behind the English Will and find out the reason why the Overseas Territories were excluded from the English Will; and also see if any advice was received from lawyers and financial advisers in the Overseas Territories before the English Will was executed, There may well have been tax issues discussed which could lead into solving the problem at least tax wise.

I agree that importing the overseas assets into the English Will is not possible and that as Andrew suggests, a separate agreement in the Overseas Territory which reflects the provisions of the English Will, with adjustments for the local Overseas Territory taxes (if any) is probably the answer.

As an aside, I am surprised with an estate of the indicated size that no proper advice seems to have been taken as to the drafting of the Wills and the tax consequences. This leads unfortunately into the position that the estate simply has to pay up. After all, inflation will in due time more than compensate for the payment of IHT at this time. If the taxes are large as indicated, perhaps HMRC will agree to payment over a period ot time to enable the taxes to be raised, which might be needed if land is involved, or if a business is involved. If the business needs the IHT monies retained in the business to enable such payments to be made without destroying the business, surely HMRC (even under Rachel Reeves) will see enough sense not to kill the golden goose..

Peter Double / Probate Resealing Services.

4

Thank you both, your input and advice is very much appreciated.

The deceased was taking advice and intended to execute Wills in the 2 excluded foreign jurisdictions - he was living in one (temporarily, with no suggestion of an intended change of domicile) and intended to move to the other (where he would have brought to change his domicile). Sadly he collapsed and died unexpectedly and had not put them in place, hence the issues we are facing.

We have now spoken to a lawyer in the jurisdiction where Deeds of Variation don’t exist - it seems that they can administer the intestacy and then vary the destination of the assets, by way of gifts to the spouse (or possibly into the Will trusts - I await advice on that) from the children, so that the funds are never theirs. This will not have overseas tax consequences as there is no iht equivalent - and apparently that is quite a normal action in that jurisdiction.

On that basis, my thoughts are that we delay submission of the iht forms until that has taken place (he died 6 months ago so we have time) and then do an English Deed of Variation, mirroring the foreign document, and demonstrating to HMRC that the assets never passed to the children so no iht should be charged. Do you think that would work?

Many thanks