The difficulty faced by many is that Wills are only revisited from time to time, meaning that they can prove to be less tax efficient than anticipated when drafted. Family circumstances may also have changed, such that the Will is not as relevant as it may once have been.
Deeds of Variation can be entered into for a broad range of reasons, and a Deed of Family Arrangement refers specifically to allow a beneficiary mentioned in a Will to redirect his or her benefit to another person of his choice (usually a child or grandchild). This means that beneficiaries can take full account of family circumstances, and the tax rules at the time of death, and the estate of the deceased can be distributed in the most tax efficient way possible.
In order for a Deed of Family Arrangement to be valid certain conditions must be met:
- It can only be made if all the beneficiaries are over the age of 18 and those affected, and the executors, agree.
- It can be made at any time after a person has died but the Deed must be executed within two years of the date of death if any tax variation is being made.
- For the deed to be effective for inheritance Tax purposes the Capital Taxes Office should be informed within six months of the deed being made.
- For the deed to be effective for Capital Gains Tax purposes the HM Revenue and Customs should be informed within six months of the deed being made.
Gifts made under the terms of a Deed of Family Arrangement are treated as having been made in the Will of the deceased. This is a useful mechanism to redirect an inheritance where the original beneficiary is elderly or independently wealthy and has no need of the legacy themselves, often passing directly to their children of grandchildren to save the inheritance from being subject to a further tax charge.
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