What if I don’t want my inheritance?
Usually, if a bequest has been made in a Will or a legacy has been awarded under intestacy rules, any objection is likely to come from a person who feels they have been overlooked. It is not normally expected that the objection will come from the beneficiary themselves.
However, there are circumstances when this may happen, and in these cases, there are things that can be done. In fact, the situation after a Will has been through Probate is much more flexible than might be assumed.
Why might I want to refuse a bequest?
There are actually a number of reasons why you would wish to refuse your inheritance. For one thing, you might object to its source. Perhaps you disapprove of the deceased and have no wish to be beholden to them, or the funds may have originally come from a source you feel uneasy about — for example, a business that, while not illegal, you find morally questionable.
However, there are also more positive reasons for wanting your inheritance to go elsewhere. If you are well off already, for instance, you may feel it would do more good elsewhere. Perhaps you wish to pass it straight on to your children, so that they have funds behind them to buy their first home. Or maybe a living spouse has been left out of the Will, and their children wish some of the bequest to go to them. Many other similar situations might also apply.
On the other hand, you could calculate that adding the bequest to your own wealth will have a detrimental effect on your tax position, especially on Inheritance Tax. Alternatively, you might want to give some or all of the bequest to charity, or place it in a trust fund.
Can I simply give it away?
The easiest way of declining a bequest would be simply to refuse it, in which case it would be returned to the estate and distributed according to the wishes of the deceased or the rules of intestacy. This may be an acceptable method if you are confident of who would benefit under this arrangement, but in general, you would have no control over who would get the assets you give up.
Alternatively, you would be entitled to receive the bequest and immediately “gift” it to the relative, charity or trust fund. The problem here is that a gift made by a living person can incur a hefty tax bill: either Capital Gains Tax, Inheritance Tax or sometimes even both.
What other options are there?
In general, the best way to pass the bequest to another specific recipient is to create a Deed of Variation. This document can formally alter the terms of the Will even after the death of the testator. A Deed of Variation can specify that cash, property, stocks and shares or an interest in a trust should be reassigned under the same terms as a bequest in the original Will.
However, there are a number of restrictions to this arrangement. For one thing, a Deed of Variation must be made within two years of the testator’s death, and only one Variation can be made on a specific bequest — i.e. the recipient of your bequest cannot then pass it on to someone else in this way.
The person who gives up the bequest is not allowed to benefit financially from the arrangement. This means that you are not allowed to make a deal under which you give up the bequest to someone else and receive a reward. Also, if the Variation alters the Inheritance Tax requirement, you must inform HMRC.
One crucial requirement is that if any other beneficiary of the Will or intestacy is affected by the Variation, all affected parties must agree to it. An example of this might be where the family home is to be sold and the proceeds split among the children, either as directed in the Will or due to intestacy. A Deed of Variation may sign the property over to the beneficiary who actually lives there, or it could be put into trust so that it remains in the family.
In this situation, everyone who would receive a share of the proceeds of sale must agree to the Deed. However, if any of these is either a minor or an unborn child, they can clearly not legally agree. In this case, it would be necessary to apply to the courts and demonstrate that the arrangement would be in the child’s interests.
A Deed of Variation must be a properly drawn-up legal document containing the statement that the tax exemption rules are to apply. It must be signed by the Executors of the Will, if applicable, as well as by all affected beneficiaries.
What are the tax and benefits implications of a Deed of Variation?
If the estate is worth a substantial amount (which may well be if it includes a substantial property) it is likely to be well above the nil rate band for Inheritance Tax. This currently stands at £325,000, and £175,000 for the residence nil rate band. Any sum above this will be taxed at 40%, so you might prefer at least some of this to go straight to your children, or to a charity dear to your heart, rather than the taxman.
However, there are some implications to watch out for. If you are on a means-tested benefit and use a Deed of Variation, you may be assessed for the benefit as if you had the extra money. Similarly, if you are receiving care funded by a local authority, passing on a bequest to someone else may be classified as “deliberate deprivation”.
How should I go about drawing up a Deed of Variation?
A Deed of Variation is a legal document, and can therefore be a minefield for the layperson. If you have decided that this is something you wish to do, you would be well-advised to speak to a solicitor who specialises in Wills and Probate and get them to help you draw up the Deed.
If you need help with this, or if you would like advice about whether a Deed of Variation is the best way to go, contact Osborne Morris & Morgan’s dedicated Probate team to find out more.