Within two years of the intestate’s death his only child a daughter who was the Administrator and sole beneficiary made a Deed of Variation with a notional Will, which made several cash legacies to extended family and her own children. The notional Will also stated the daughter received the residue after the legacies and was irrevocable. There was no inheritance tax payable by the estate.
It is still within the two years since her father died and the daughter wishes to make a further Deed of Variation to make further cash gifts to her children instead of making PETs from her own estate. The daughter received enough from her father’s estate to make the gifts without gifting the money she has already given away. When drafting the second Deed of Variation should the first Deed of Variation be referenced in the ‘Background’. Then in the ‘Variation’ it sets out the new additional legacies to the children?
I have seen on the Trust Discussion Forum and elsewhere making a Deed of Variation incorporating a notional Will is not recommended, but any assistance would be appreciated.
This is one of the many issues that arise where a “substituted will” is incorporated into a variation.
As the further variation the daughter intends was not actually changed by the first variation – her entitlement merely reduced, the second variation should be acceptable under s.142 IHTA and s.62(6) TCGA.
Yes, the first variation does need to be referred to and a recital included that the second variation is intended to vary only the interest she retained under that first variation.
I would strongly advise against incorporating a further substituted will, instead “making” the now intended gifts out of the retained interest under the original substituted will.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
A variation is in reality a gift by the original beneficiary/surviving owner, dressed up in a particular fashion only for IHT and/or CGT purposes. .
This basic principle gets somewhat masked by the use of a substituted will, which adds layers to the tax fiction and often causes confusion. Examples include:
A variation on intestacy where the “will” includes the appointment of “executors”;
What is the status of cash gifts within the “will” – are they gifts of the fixed sum only or are they to be treated the same as legacies (which may include the right to interest from the end of the executor’s year – which is perverse if the variation is made after the first anniversary of death);
As identified by the initial posting in this string – can the dispositions of a substituted will itself be varied;
If more than one beneficiary makes a variation in which they purport to create a substituted will, how do they interact, if at all; and
To what extent do other beneficiaries need to be party to the variation if the entire will is substituted.
My long-standing view is that the terms of a variation should be limited to only those dispositions that are intended to be varied. This enables the parties, in particular the executor(s) or administrator(s), to more clearly understand the effect of the variation. Also, by not (re)creating a will that the variation purports the deceased may have made, which invariably includes all of the usual provisions covering every possible eventuality should any of the beneficiaries die of gifts otherwise fail, the drafter will save time and (hopefully) enable the variation to be produced at less cost to the client beneficiary.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thanks Paul. I agree - the danger in creating a Notional Will is you miss something by creating the Notional Will, that you weren’t instructed to advise on but still remain liable for.