post death changes to the Will - variation or disclaimer Flashcards
(32 cards)
What is a variation?
A variation is a direction from an original beneficiary, to the deceased’s PRs, to transfer property that the beneficiary is entitled to under the terms of a will or the intestacy rules to another person instead.
Is a variation possible after an inheritance has been accepted?
Yes
A variation may be made in respect of what section of the inheritance?
A variation may be made in respect of the:
1. whole of an inheritance
or
2. part of an inheritance
What is the writing back effect for IHT in terms of variation?
The writing back effect means the new beneficiary is treated as inheriting the assets from the deceased. The new beneficiary is deemed to acquire the assets at their date of death value (not the value at the date of the variation).
What are the conditions that a variation must comply with so that the ‘writing-back’ effect of IHT is achieved?
Legislation: s 142 (1) IHTA
- made by the original beneficiary in writing (a deed is not required but frequently used) / written election
- within the two years following the deceased’s death
- contains an express statement by the beneficiary confirming s 142 IHTA should apply
- not be made for consideration in money or money’s worth.
If the conditions are satisfied, the gift from the original beneficiary is read-back to what date?
If the conditions are satisfied, the gift from the original beneficiary is read-back to the date of the deceased’s death and treated for IHT purposes as having been made by the deceased to the new beneficiary (instead of being made by the original beneficiary to the new beneficiary) - ‘writing back’.
Who is free to determine who receives the varied inheritance?
The original beneficiary.
Can a beneficiary vary their entitlement to the estate assets without approval from the PR’s of the deceased’s estate?
Yes.
However, if the variation results in additional IHT being due in respect of the deceased’s estate, the PRs should do what two things?
• Sign the variation
• Provide HMRC with a copy of the written variation and pay the amount due.
When can the PRs refuse to sign the variation/approve the ‘writing back’?
If the assets held by them are insufficient to discharge the additional tax payable.
When variations are made, what are the CGT consequences?
Under normal rules a gift by the original beneficiary to another person would be a disposal by the beneficiary. If the assets had increased in value since the date the deceased died a CGT liability can arise if the increase is more than the beneficiary’s TFA (tax free allowance).
If an estate beneficiary wants to give away their inheritance but avoid a CGT charge, what provisions permit a writing-back effect?
The provisions of s 62 Taxation of Chargeable Gains Act 1992 permit a writing-back effect similar to that available for IHT under s 142 IHTA.
What is the effect of complying with the conditions for s 62 Taxation of Chargeable Gains Act 1992?
The gift is ‘written-back’ to the deceased’s date of death and treated as having been made by the deceased. The writing back effect means the new beneficiary is treated as inheriting the assets from the deceased, and the original beneficiary has not made a disposal.
When do CGT consequences for variation only need to be considered?
CGT consequences only need to be considered where non-cash assets are the subject of the variation.
Can the original beneficiary choose whether or not to use the writing back provisions for IHT and CGT?
Yes.
IHT consequences for variations simplied?
points to think about:
1. when is the gift read-back to (date)?
2. who is the gift treated as being from?
3. any IHT?
- the gift is read back to the date of the deceased’s death.
- the gift is treated as being made from the deceased (instead of the original beneficiary) to the new beneficiary.
- original beneficiary does not make a PET.
CGT consequences for variations?
points to think about:
1. when is the gift read-back to (date)?
2. who is the gift treated as being from?
3. any CGT?
- the gift is read back to the date of the deceased’s death.
- the gift is treated as being made from the deceased (instead of the original beneficiary) to the new beneficiary.
- original beneficiary does not make a disposal (no CGT).
If the original beneficiary is a minor or lacks mental capacity, can they make a variation?
No.
What is the limit on the number of times a will can be varied?
No limit.
What is the limit on the number of times an asset within a will can be varied?
Each asset can only be varied once.
What property cannot be varied?
• Life tenant: Property in respect of which the deceased was a life tenant immediately before death. The trust deed will determine where those assets go.
• GROB: If the deceased had made a gift with reservation of benefit, this property cannot be varied post death.
If the original beneficiary makes a variation of property but continues to enjoy the property, has the original beneficiary made a gift with reservation of benefit?
No - Because the effect of the writing back provisions is to treat the arrangement as a disposition by the deceased.
What is a disclaimer?
A disclaimer is similar to a variation but operates as a refusal to accept property to which a beneficiary is entitled either under the intestacy rules or under the terms of a will.
What are the limitations to a disclaimer?
• A beneficiary can only disclaim before acceptance.
• A beneficiary can only disclaim the whole gift.
• A disclaimer of a beneficiary’s rights under a will does not disclaim their rights under any intestacy.
• The inheritance passes as if the gift to the original beneficiary had failed.
