Who should pay for a deed of variation?

[swill453]

I've put together a Deed of Variation for my Dad to vary an inheritance he's getting. I followed the HMRC checklist, and all that needs to happen is he signs it and keeps it. Then he passes on the cash, of course. ...

I may be wrong but am surprised the cash should ever reach your Dad. Should it not be remitted by the Executor(s) under the terms of the DoV?

The Executor doesn't need to know, and won't. It's our choice to do it this way.

Scott.

[PinkDalek]

[I can see the logic in what is being said although there does not seem to be anything specific on the subject in the link which PD has provided.

Yes, it was silent on anything but IHT and CGT. That was rather my point.

It is somewhat similar to the thread I instigated recently about trying to avoid an inheritance being used for home care fees.

Indeed and I was this minute looking at that thread to see if there was anything relevant for this one. If anyone is interested and attempting not to divert this one, here it is:

What counts for care home Fees?
viewtopic.php?p=351840#p351840

[chas49]

I've put together a Deed of Variation for my Dad to vary an inheritance he's getting. I followed the HMRC checklist, and all that needs to happen is he signs it and keeps it. Then he passes on the cash, of course. ...

I may be wrong but am surprised the cash should ever reach your Dad. Should it not be remitted by the Executor(s) under the terms of the DoV?

It depends on when the DoV is made. A DoV can be 'done' up to two years after the death, so it's entirely possible for it to happen after the distribution of the estate. In which case the executor will never know about it, and doesn't need to - it just makes the IHT position as if the will had left the money to the new recipient.

[PinkDalek]

I may be wrong but am surprised the cash should ever reach your Dad. Should it not be remitted by the Executor(s) under the terms of the DoV?

The Executor doesn't need to know, and won't. It's our choice to do it this way.

That's interesting and I obviously missed your This way the executor doesn't even need to know it's been done but am still surprised it is possible, due probably to a lack of knowledge as the DoVs I've been involved with have all had IHT & CGT aspects. Sorry for diverting the OP's Topic.

[swill453]

That's interesting and I obviously missed your This way the executor doesn't even need to know it's been done but am still surprised it is possible, due probably to a lack of knowledge as the DoVs I've been involved with have all had IHT & CGT aspects. Sorry for diverting the OP's Topic.

The change can't and won't affect any tax on the estate. Since it's now 13 months since the death, we're loathe to give the Executor any further reason to delay.
(Also sorry for diversion).

Scott.

[Dod101]

[
DoVs are ineffective for people attempting to wriggle out of third parties debts. There was plenty written on this subject back in the days of TMF. Sadly those posts are most likely impossible to find, even if saved in the WayBackMachine.

Therefore a random blog might assist:

https://www.vwv.co.uk/news-and-events/blog/private-client-law-brief/deeds-of-variation

the variation takes place retrospectively for inheritance tax and capital gains tax purposes. only, as far as I am aware.

If your 'only' is suggesting that these are the only circumstances for a D of V to apply, that is not the case as I know from a very personal experience. They can be used in a variety of situations.

Dod

[eisman]

PinkDalek wrote:

the variation takes place retrospectively for inheritance tax and capital gains tax purposes. only, as far as I am aware.

I can confirm this is correct, meaning that FOR TAX PURPOSES the variation is only effective for IHT (and for CGT if the deed includes a statement that it is to apply for CGT purposes - although not relevant here, as only cash is being paid).

It does not have retrospective effect for income tax purposes, as confirmed by the case of Marshall v Kerr. See: https://www.gov.uk/hmrc-internal-manual ... l/tsem1815

EISman

[hiriskpaul]

Back on this drama again. The particular beneficiary who wants to pass his share of the residuary estate to his kids has increased the complexity of what he wants to do a little and has been quoted £650+VAT by one solicitor and £1000+VAT by another for the DoV.

He now wants to keep 10% of his share of the residuary capital and redirect the other 90% of his share to each of his 3 kids, split equally between them. In addition, he wants to redirect his share of the estate income to just 2 of his kids (students/non-taxpayers) so that they can reclaim the tax on the rental income. Both solicitors seemed happy with this arrangement, but curiously one of them said that for simplicity he might suggest creating 3 DoVs, one for each of his kids. He said the charge for doing the work would be the same whether 1 or 3 DoVs were required. However, the beneficiary has baulked at the prices being quoted for the DoVs and has asked me whether 1 or 3 DIY letters written by him, adhering to the gov.uk Instrument of variation checklist (https://www.gov.uk/government/publicati ... klist-iov2) would be ok. (Similar to Swill453's suggestion).

My answer (I think) is that I am happy for him to do this and from what I have read on these boards and elsewhere, I really don't think it is for me to say, or to insist on properly drawn up and witnessed DoVs anyway. As here are no IHT implications I don't need to sign them, or send them to HMRC. Provided he gives me 3 clear and unambiguous letters (IoVs), or just 1 with all the details on it, signed by him and each of his kids, so that I know precisely who to pay what share of the capital and income to and who to give R185 (Estate) forms to, then I think that should be OK. From what I have read, I am not even convinced I could insist on solicitor produced DoVs anyway could I?

Thoughts anyone?

[hiriskpaul]

Back on this drama again. The particular beneficiary who wants to pass his share of the residuary estate to his kids has increased the complexity of what he wants to do a little and has been quoted £650+VAT by one solicitor and £1000+VAT by another for the DoV.

He now wants to keep 10% of his share of the residuary capital and redirect the other 90% of his share to each of his 3 kids, split equally between them. In addition, he wants to redirect his share of the estate income to just 2 of his kids (students/non-taxpayers) so that they can reclaim the tax on the rental income. Both solicitors seemed happy with this arrangement, but curiously one of them said that for simplicity he might suggest creating 3 DoVs, one for each of his kids. He said the charge for doing the work would be the same whether 1 or 3 DoVs were required. However, the beneficiary has baulked at the prices being quoted for the DoVs and has asked me whether 1 or 3 DIY letters written by him, adhering to the gov.uk Instrument of variation checklist (https://www.gov.uk/government/publicati ... klist-iov2) would be ok. (Similar to Swill453's suggestion).

My answer (I think) is that I am happy for him to do this and from what I have read on these boards and elsewhere, I really don't think it is for me to say, or to insist on properly drawn up and witnessed DoVs anyway. As here are no IHT implications I don't need to sign them, or send them to HMRC. Provided he gives me 3 clear and unambiguous letters (IoVs), or just 1 with all the details on it, signed by him and each of his kids, so that I know precisely who to pay what share of the capital and income to and who to give R185 (Estate) forms to, then I think that should be OK. From what I have read, I am not even convinced I could insist on solicitor produced DoVs anyway could I?

Thoughts anyone?

I have been doing a little more reading on DoVs/IoVs and it looks to me as though what this beneficiary is now proposing may be invalid. He has an absolute interest in part of the residuary estate. The will does not even mention estate income. It seems to me, from what I have read, that he can redirect part or all of his absolute interest to other people using DoVs/IoVs, but what he cannot do is redirect the income separately from the capital. I have not yet found anything explicitly stating he cannot do this, but neither have I found anything indicating that this is allowed and I would expect to see examples if it was allowed as it is such an obvious thing to do. Redirect income towards lower taxpayers, capital to higher taxpayers.

I am surprised the solicitors he spoke to did not tell him what he was proposing was not allowed.

So I am now uncertain again as to my position in this if the beneficiary insists his IoV letter is valid.

[scrumpyjack]

As I understand it, (but IANAL) the accumulated income arising during the estate administration goes with the residuary interest, so if he varied his legacy from the estate to a specific pecuniary amount, rather than a percentage share, he would be entitled to that pecuniary amount and all the income would go to the residuary beneficiaries.

[hiriskpaul]

As I understand it, (but IANAL) the accumulated income arising during the estate administration goes with the residuary interest, so if he varied his legacy from the estate to a specific pecuniary amount, rather than a percentage share, he would be entitled to that pecuniary amount and all the income would go to the residuary beneficiaries.

Being the executor of this estate, for which I am not even a beneficiary, has given me no end of hassle to the point of being farcical*, so I don't think I will even mention the possibility of this!

What you say is interesting though. In this case there are no pecuniary or specific legacies that could be redirected using a DoV/IoV, so one would need to be created. From what I have read, I think that is beyond what is possible with a DoV/IoV, even if all the beneficiaries agreed to it (or is it?). Also, the beneficiary's children are not currently beneficiaries, so they would need to be added with the other beneficiaries giving up some of their entitlement.

One thing I have thought of that would be simple is for the beneficiary to redirect his entire residuary interest to his 2 student kids. The rental income would then be taxable on them. They could subsequently give some of the legacy to the third sibling, a taxpayer. However, if the HMRC ever found out they would likely consider the subsequent gifting of part of the legacy to be pre-planned related transactions and would likely tax the sibling on the part of the rental income she received.


* eg, one of the deceased's tenants died in August, but no-one bothered to tell me for several weeks. That tenant was a hoarder and we have been unable to find any next of kin! A flat full to the brim with books and other junk, no-one to take responsibility for the estate (no-one to bill for unpaid rent or dispose of the belongings) and a local council wanting the council tax paid from August! I am arguing with the council about the estate's liability for that.

[Howard]

As I understand it, (but IANAL) the accumulated income arising during the estate administration goes with the residuary interest, so if he varied his legacy from the estate to a specific pecuniary amount, rather than a percentage share, he would be entitled to that pecuniary amount and all the income would go to the residuary beneficiaries.

Being the executor of this estate, for which I am not even a beneficiary, has given me no end of hassle to the point of being farcical*, so I don't think I will even mention the possibility of this!

You seem pretty tolerant to me!

If I were executor in your situation, I'd now insist on using a solicitor to implement the complications you are being asked to consider. And of course, charging the beneficiary the fees. I'd do this to protect myself from future problems which, in my view, are certain to arise from the situation you describe. Ideally, as an executor, you would surely want to bring the process to a satisfactory end as soon as possible, allowing you to get on with your own life!

It may simplify the process, as the beneficiary will probably go for a simpler solution once he/she is paying for it.

Using an impartial professional may cost money, but it will avoid your being blamed for any problems which arise from a diy solution. And these problems might only arise way in the future. You might never be free from them!

Just my view. I'm not a lawyer but am sympathetic to your situation.

regards

Howard

[hiriskpaul]

As I understand it, (but IANAL) the accumulated income arising during the estate administration goes with the residuary interest, so if he varied his legacy from the estate to a specific pecuniary amount, rather than a percentage share, he would be entitled to that pecuniary amount and all the income would go to the residuary beneficiaries.

Being the executor of this estate, for which I am not even a beneficiary, has given me no end of hassle to the point of being farcical*, so I don't think I will even mention the possibility of this!

You seem pretty tolerant to me!

If I were executor in your situation, I'd now insist on using a solicitor to implement the complications you are being asked to consider. And of course, charging the beneficiary the fees. I'd do this to protect myself from future problems which, in my view, are certain to arise from the situation you describe. Ideally, as an executor, you would surely want to bring the process to a satisfactory end as soon as possible, allowing you to get on with your own life!

It may simplify the process, as the beneficiary will probably go for a simpler solution once he/she is paying for it.

Using an impartial professional may cost money, but it will avoid your being blamed for any problems which arise from a diy solution. And these problems might only arise way in the future. You might never be free from them!

Just my view. I'm not a lawyer but am sympathetic to your situation.

regards

Howard

Discussions on Deeds of Variation are trivial compared to many other things I have had to deal with and I don't particularly mind them. I have made it clear that the estate will not be paying solicitors fees for DoVs. The main difficulty now is in disposing of the house, which is being bought out of the estate by the main beneficiary (together with a deed of appointment for part of it). This is now in the hands of solicitors, but is still not straightforward as the main beneficiary is an idiot and his solicitor about the most glacial I have ever come across. I really hope the solicitors can get the transaction done this financial year though so I don't have to do a set of estate tax returns for 2021/22. It really is in the best interests of the beneficiary to take over the house before SDLT goes up again, but neither the beneficiary nor his solicitor appear to show any concern about it. Once the house is out of the estate, the dead tenant problem should largely be out of my hands as well, although I may have to hold back some cash in case I eventually have to pay council tax.

[GoSeigen]

As I understand it, (but IANAL) the accumulated income arising during the estate administration goes with the residuary interest, so if he varied his legacy from the estate to a specific pecuniary amount, rather than a percentage share, he would be entitled to that pecuniary amount and all the income would go to the residuary beneficiaries.

Being the executor of this estate, for which I am not even a beneficiary, has given me no end of hassle to the point of being farcical*, so I don't think I will even mention the possibility of this!

What you say is interesting though. In this case there are no pecuniary or specific legacies that could be redirected using a DoV/IoV, so one would need to be created. From what I have read, I think that is beyond what is possible with a DoV/IoV, even if all the beneficiaries agreed to it (or is it?). Also, the beneficiary's children are not currently beneficiaries, so they would need to be added with the other beneficiaries giving up some of their entitlement.

One thing I have thought of that would be simple is for the beneficiary to redirect his entire residuary interest to his 2 student kids. The rental income would then be taxable on them. They could subsequently give some of the legacy to the third sibling, a taxpayer. However, if the HMRC ever found out they would likely consider the subsequent gifting of part of the legacy to be pre-planned related transactions and would likely tax the sibling on the part of the rental income she received.


* eg, one of the deceased's tenants died in August, but no-one bothered to tell me for several weeks. That tenant was a hoarder and we have been unable to find any next of kin! A flat full to the brim with books and other junk, no-one to take responsibility for the estate (no-one to bill for unpaid rent or dispose of the belongings) and a local council wanting the council tax paid from August! I am arguing with the council about the estate's liability for that.

The nonsense people get up to to avoid a little bit of tax! -- which is not entirely wasted, it benefits the taxed by giving the education to those youngsters, for example...

Fascinating saga BTW hiriskpaul. I agree with your thoughts that the "capital" and "income" are not divisible as proposed. Looks like the beneficiary wants to do something analogous to gilts strips, but does that make any sense without the pre-existing contractual terms which create the strips in the first place?


GS