Ineffective Deed of Variation

I am dealing with an estate where one of the residuary beneficiaries has executed a Deed of Variation prepared by her local solicitor. Unfortunately it is ineffective as it purports to give 3 legacies before payment of the residue (which is split 3 ways). The other 2 beneficiaries have not signed the Deed to consent to this. Furthermore, the varying beneficiary’s intention was that the 3 legacies came from her share of the estate only.

I have advised her to speak to her solicitor in this regard but I am concerned that as the Deed is irrevocable, if her solicitor simply drafts a new Deed of Variation, is this falling foul of the rule against varying the same asset twice?

Emma Radford-Shayler
John Hodge Solicitors

If I’ve understood you correctly, the will gives a simple gift of residue, split three ways. The DoV purports to vary the disposition of the estate, so that the will as varied would give three legacies, followed by a gift of residue split three ways.

From what you say, it sounds as though the deed may be effective in some way. If the intention was that only the varying beneficiary’s share of the estate was to be varied, then the other two residuary beneficiaries’ consents weren’t needed in order to do that. The three legacies could then come out of that beneficiary’s share.

Where it gets difficult is the purported variation of the gift of residue. Clearly, the DoV can’t vary the disposition of the other two shares and without sight of the will and the DoV, it’s difficult to say what the effect might be. The possibilities are:

  1. The DoV is of no effect, since on its true construction it was intended to work as a whole;
  2. The DoV, on its true construction, does what was intended, i.e. gives part of the 1/3 share of residue to the new legatees, and the residuary beneficiary retains the rest;
  3. The DoV does have some effect, but not the subjectively intended effect, and may be capable of rectification.

If the DoV has any effect, then, as you say, the assets that have been affected can’t be the subject of a further deed.

Josh Lewison
Radcliffe Chambers

On a literal interpretation If the wording of the DoV is that three legacies are to be given prior to a division of the residuary estate but is only signed by one residuary beneficiary (but not signed by the other two) then IHTA 1984 s 142(2) is not satisfied ie not all “relevant persons” (the three residuary beneficiaries) have signed the DoV.

In which case it seems the DoV is simply ineffective ie null and void.

However, the literal interpretation clearly does not achieve what was intended and so may be capable of rectification.

Malcolm Finney

I agree with what Josh Lewison writes.

Looking at it from a different angle, I assume the executors were not a party to the deed. I would therefore say that they are perfectly within their rights to pay the beneficiary’s (B) share of the estate (in accordance with the Will itself) to B and then B can pass on to his chosen recipients whatever he considers the DoV gives them.

It seems to be an issue for B, not for the executors. For example, if the DoV was not effective, then it will be an inheritance tax issue for B’s estate if B passes on more than the terms of the DoV actually give.
That will not affect the executors of the estate being “varied”, on the basis that the inheritance tax position of the estate will be the same either way. B should seek his own legal advice about the effect of the DoV and act in accordance with it (and/or take whatever other steps might be appropriate - eg application for rectification, further DoV, etc).

If the DoV in fact gives the recipients more than B intended, then again that is a matter as between B and those recipients and B will need to consider how to deal with that (rectification, agreement between him and the recipients, etc).

Paul Davidoff
New Quadrant Partners

I suggest that rectification should be considered for, as others have commented, merely treating the deed as void and making a new deed which correctly does as intended might just lead to yet more issues.

Those who drafted the defective deed should be put on notice of the issue and advised to notify their insurers.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

With regard to Emma’s specific question, the existing Deed would be irrevocable unless void. However a second DOV, drafted carefully in the alternative in conjunction with the existing DOV, should theoretically be capable of avoiding varying the same asset twice. I am not sure this should become the Executors’ concern however.

From Emma and her executor clients’ point of view, it seems that the suggestion made that the estate distribute directly to the varying beneficiary is the soundest. This would leave the potential issues quite reasonably with that beneficiary and her solicitor.

A deed of Rectification seems to be the most complete solution for all parties, actual and potential. This could be an alternative requirement made on behalf of the executors, if the direct distribution were for any reason unattractive to that beneficiary.

Mark Walker
Anglolex Ltd.

I would be wary of using a deed of rectification without first taking the advice of Chancery counsel, mindful that once in place it precludes an application for rectification.

HMRC has a history of refusing to accept the effectiveness of deed of rectification, instead insisting a court order is obtained.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

My intended outcome had been for the executors to be wholly distanced from any uncertainty connected with the original DOV.

I had accordingly intended to refer to a Court ordered Rectification.

That’s a vital observation, Paul. It ironically permits a rectification of my unintended reference to a mere “Deed”.

Mark Walker
Anglolex Ltd.

If you still have funds in the estate, can you do a 2nd deed of variation leaving a legacy to the other two residuary beneficiaries so that they receive what they would have received if the 1st deed wasn’t signed?

Ruksana Kaskar
Hamilton Davies LLP

Coming a little belatedly to this issue, it seems to me that Paul Davidoff has raised the vital point insofar as the executors are concerned. The Executors are bound to administer the Will and distribute the Estate accordingly unless they were parties to the DoV. Even then, I suspect they are similarly bound as the DoV purports to vary the shares of residue of beneficiaries who have not consented to the DoV. The Executors should, therefore, distribute as per the Will. The Varying Beneficiary can then make the gifts/legacies she requires and the IHT implications become an issue for her, her solicitors and HMRC as to the effevtiveness or otherwise of the DoV.

Graeme Lindop
Probate Consultant
Coles Miller Solicitors LLP