When and how to change the effect of a Will
A person who has written their Will can update this during their lifetime by either using a Codicil or by writing a new Will, which cancels (revokes) their old Will. But not many people realise that actually Wills can be changed after a person has died. This can be achieved by the Court in certain situations or even by the beneficiaries who can club together to make changes. We explore these possibilities here:
What is a Codicil?
In short, a Codicil is effectively an addition to a previous Will. They are often used to add new beneficiaries to a Will or to change their entitlement. A Codicil becomes part of the Will and provided it is signed and witnessed correctly, it is legally binding - though they can carry some complications, which is why many professionals would advise a new Will is made from scratch rather than making a Codicil. There is no maximum number of Codicils a person can make, however, this again can cause complications because it can prove difficult for executors to interpret the wishes of the testator if these are recorded and then changed across numerous documents. There is also the risk that the Codicil(s) becomes lost or separated from the Will and other Codicils.
When would a Court change a Will?
A court can decided that a Will should be changed after the death of the testator (the person who made the Will) and this arises where a beneficiary or potential beneficiary challenges the Will and/or makes a claim against the estate because they feel they either haven't benefited or they are unhappy with any conditions attached to the gift.
Certain people are entitled to claim against an estate for reasonable provision, this would include for example a spouse or civil partner, as well as children, a former spouse and anyone who has been maintained by the person who has died. It is worth noting that a person can claim against the estate of a person who has died without leaving a valid Will (known as Intestacy) as well as against an estate where a Will exists.
There could well be a mistake in the Will which comes to light following the death and needs to be rectified. Sometimes, the wording of the Will may be ambiguous or may even contain errors or mistakes. In these situations an Executor or Beneficiary can ask the Court to rectify the Will.
Leaving it to Trustees to decide (2 Year Discretionary Trust)
A testator may leave part or all of their estate in a Discretionary Will Trust. Such a trust allows ultimate flexibility and can be tailored by the trustees to meet the beneficiaries circumstances at the relevant time, rather than the testator having to specify who gets what and when. The exact testamentary effect of the Will is therefore, effectively determined after the testator's death. None of us know what the future may hold and so these are a popular option to provide asset protection and ensure the beneficiaries inherit at the right time during their lives, if at all. Any distributions made from a discretionary Will trust within two years of the testator’s death are treated as if the testator’s Will itself had specified the gift. This relief operates in a similar way to those in relation to variations and disclaimers of Wills or intestacy provisions. However, the relief applies automatically and there is no need for trustees to claim it. The distribution is not subject to the exit charge which would otherwise arise. Provided a discretionary Will trust is distributed within two years from the date of death on appropriate terms, the relevant property regime will not apply.
In her Will, Wilma creates a discretionary Trust of her residuary estate of £575,000. She has chosen her husband, Fred and their children and grandchildren as beneficiaries. She dies in May 2018.
Inheritance Tax position - There is £100,000 payable (£575,000 - Nil Rate Band £325,000 = £250,000 @ 40%). The spouse exemption is not available because Fred has not inherited from the estate.
In October 2019 (within 2-years of Wilma's death), the Trustees make the following distribution:
£325,000 (the Nil Rate Band) to the grandchildren and the rest £250,000 to Fred which will be exempt from Inheritance Tax due to spouse exemption.
No Inheritance Tax is now payable on Wilma's death since the distributions are 'written back' into the Will. Any Inheritance Tax paid will be repaid (with interest) by the Revenue.
When can beneficiaries change a Will or Intestacy?
Many people do not realise that a Will can be altered following the death of the testator but if the beneficiaries are all adults (i.e. over the age of 18) and they all agree, then they are permitted to change a Will and even the rules of intestacy. This has to be in writing and is known as a Deed of Variation, an Instrument of Variation or a Family Arrangement. Often these types of deeds are used to improve the tax planning or to make provision for another beneficiary. For example:
A beneficiary may wish to redirect their entitlement to other members of the family who are less well provided for; or
To save tax, often Inheritance Tax especially if the deceased's Nil Rate Band and any exemptions and reliefs have not been fully utilised. Or to decrease the effective rate to 36% (from 40%) if more than 10% of the estate is being left to charity.
The deed has to be entered into within 2 years following the death of the testator and must be drafted by a qualified professional. Where a minor beneficiary's interest is to be varied, then court approval may be required, and irrespective of this a minor's share cannot be decreased, it must either stay the same or increase in value. Once entered into, the Deed is final and irrevocable and so it is vital that it is correct since you do not have a second bite of the cherry, especially where the intention was to save Tax and a mistake has arisen.
A beneficiary can disclaim their gift, i.e. they refuse it. The Law does not compel a person to accept a gift and refusing it is known as a disclaimer. The beneficiary must refuse the gift before accepting any benefit from it and it will pass to the next person entitled under the Will or then Rules of Intestacy. The beneficiary disclaiming their gift cannot specify where they would want it to go and so a Deed of Variation is often preferred since these are more flexible. Again, the disclaimer must be in writing and within 2 years of the death of the testator.
Following the Budget in July 2015, the HMRC carried out a consultation on the use of deeds of variation for tax purposes. It concluded that there was no evidence of abuse, although they would continue to monitor their use.