Last Resort Legacy Planning

Naturally, none of us want to leave a mess for those we love when we are gone. It is a real act of kindness to leave our affairs in good order for our next of kin when the time comes.

Perhaps due to the seemingly endless reams of column inches devoted to the topic, a lot of families are coming to us with questions about how to best plan for passing assets onto the next generation efficiently. Not just from an Inheritance Tax perspective, but to ensure the right people get the right support at the right time.

But it is a very sad fact of life that some of us will not get much warning before we arrive at the pearly gates. And it is another sad fact of life that a lot of people just do not get around to organising their estate for the next generation in time.

In these kind of situations, a Deed of Variation can offer a priceless legacy planning “safety net”.

A Deed of Variation is a legal document that allows a beneficiary of an estate to redirect some or all of their inheritance to someone else, after the deceased has died, without that redirection being treated as a gift from the beneficiary for tax purposes.

This opens up some interesting post-humous planning opportunities, and I’ll share some examples below. But first we need to answer…

What is required for a valid Deed of Variation?

For a Deed of Variation to “work” it must:

• Be executed within 2 years of death;

• Be in writing;

• Not result in any consideration being paid to a beneficiary; and

• Include the statutory election(s) for the relevant Inheritance Tax and Capital Gains Tax treatment to apply.

  
  

I had previously been harbouring under the impression that a valid Deed of Variation requires all beneficiaries to agree to forgoe their respective entitlements.

This is not actually the case, and an individual beneficiary can choose to pass on their individual inheritance, rather than requiring every single beneficiary to sign the Deed. Thank you to Matt Pitcher at Altor Wealth for putting me right on this.

When is this a good solution?

I have set out below some examples of where I have seen a Deed of Variation work nicely.

Skipping a generation

Let’s say elderly parent passes away and leaves their entire estate to their, now grown up, child. Said child is financially secure in and of themselves and already has a large Inheritance Tax liability that they are concerned about. Maybe they have also had some health issues into the bargain.

They can, if they wish, choose to vary the terms of the will so that the assets pass “down a generation” to their children immediately - either directly or via trust. This means that the potential for a double Inheritance Tax charge is reduced, and the money goes to the most needing of the family the quickest.

Protection for cohabiting partners

Current intestacy laws offer no protection for unmarried cohabiting partners. Which is mental in 2026, but that’s where we are.

What this means in practice is that if one of an unmarried couple passes away without a will, their partner (who they may have lived with for decades, and have kids with) stands to get none of their estate. Under current intestacy laws, the estate would instead pass to any children the deceased has, then their parents, then their siblings and so on.

So in this instance, a Deed of Variation can be used to post-houmously provide for the remaining partner in a relationship. The main practical snafu with a Deed of Variation in this kind of situation, is that a minor child cannot legally consent to giving up any entitlement bestowed upon them through a will or the intestacy process. This only works if the kids are over 18.

The charity hack

A simple, yet effective, bit of Inheritance Tax planning (that I weirdly rarely see in the wild) is that if 10% or more of an estate is left to charity - the Inheritance Tax rate applied to an estate is reduced from 40% to 36%.

This can throw up some opportunities for the beneficiaries of a large estate, particularly if a charitable gift can bring the “Residence Nil Rate Band" back into play.

These are just a couple, there are more. The key message from this week is that legacy planning doesn’t stop when the deceased departs this mortal coil.

Despite this, it should only really be used as a last resort. Having an up to date will that reflects your current wishes should be the top priority job.

None of the above is intended to represent advice to any individual. If you have any questions regarding your specific position, please get in touch with a regulated financial adviser.