Gift or Deed of Variation?

There are circumstances where the executors and beneficiaries of an estate want to redirect some of an estates assets to someone who was not included in the Will. There are many reasons as to why you might want to do this, it could be you believe they were mistakenly left out, new grandchildren could have been born since the will was written, or you are acting on a verbal request from the deceased. Whatever the reason you should consider carefully how you are going to redirect the estates assets.

One option would be to distribute the estate according to the wishes in the will, after which the beneficiaries would pass on the amount they want to give to the person/people that were not included. This can be an effective way of including someone if you are giving them less than £3000 or the person receiving the assets is under 18 years old.

Doing this would be considered as a ‘gift’ from one person to another and would be made completely independently from the estate administration. This Gift can be made at any time and to your own discretion. Although before gifting any money you should consider who’s share of the estate these gifts would be coming from or whether all the beneficiaries are in agreement to gift an equal amount. Verbal agreements in this situation can easily fall through so it is important that everyone is clear and on the same page to avoid disagreements and contention.

It is important to note that the person receiving the gift would not be considered as a beneficiary of the estate. This is often a factor that is misunderstood by many executors and beneficiaries. It is not uncommon for executors and beneficiaries to believe that, as they received no personal gain from what they have gifted, it was never theirs to begin with but until the gift is given the legal owner is the person who inherited it through the will or Rules of Intestacy. The person receiving the gift is not considered a beneficiary of the estate because they are not entitled to a share through either the Will or the Rules of intestacy. Only the named or entitled beneficiaries can inherit from the estate, once they have accepted their inheritance they are the legal owners and can do with their property as they wish. If they wish to share what they have inherited with someone who was not entitled to inherit they can do so by gifting it to them.

It is highly recommended not to use this method if you are planning to gift more than £3000. Once you have received your inheritance you are the legal owner and you can do as you wish with your own property this includes giving it away but this could make your estate liable for inheritance tax when you pass away. You should take into consideration your own financial circumstances before deciding to take this option.

This is because you only have an allowance of £3000 a year that you can give away without it being subject to Inheritance tax upon your death. Gifts of £3000 or more given in the 7 years prior to your death will be counted as part of your estate and are taxable using a taper relief system, if your estate is valued at over your individual inheritance tax allowance. If you believe your estate to be over your allowance before or after receiving your inheritance you should consider carefully what implications there could be if you were to give a large monetary gift.

If you wish for a person who was not mentioned in the will to receive more than £3000 from the estate, your option would be to use a Deed of variation. A deed of variation is a legal document that varies the wishes in the Will and can be used to redirect the assets in the estate. This means that a person who was not written into the will can receive an inheritance directly from the estate as a beneficiary rather than through a potentially taxable gift by another beneficiary.

A deed of variation would in most cases be the recommended option as it creates a record of what has happened to the estate. A deed of Variation creates a paper trail of who inherited what from an estate and will show the redirection of assets from the Estate to the person not included in the original Will and proving that the Will’s named beneficiaries never inherited those assets and therefore they cannot be counted as part of their estate upon their death. One of the main conditions when using a deed of variation in this way is that all of the beneficiaries who would be disadvantaged by the change must agree to it.

 

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