The gifts and terms contained in a will and who benefits from it are up to the individual who had the will drafted. Or in the absence of a will, the intestacy rules prevail to determine who benefits and in what proportions. There may circumstances where those who have been left gifts or stand to inherit, might decide to pass their gift or entitlement to someone else for a variety of different reasons.
Beneficiaries are not obliged to accept any inheritance, whether under a will or under the terms of an intestacy. There can be a number of reasons why individuals decide to give up their interest: that can be for tax, purely financial or in some cases more personal, philosophical reasons
We advise our clients to review their wills periodically, every five years or so or when there is a change in legislation. Often a will is made several years prior to an individual’s death and in the meantime, the family circumstances can change significantly.
As a result, the way in which the will is drafted and individuals identified as benefitting is not always appropriate or relevant either for the needs of the family or from a tax perspective.
For example, when children are young, it can be sensible to leave an inheritance by way of a trust, contingent on individuals reaching a certain age. When the individual dies, a trust may be tax inefficient or administratively burdensome at that point and require amendment.
The deceased may have left their estate to their children equally, but at the time of death one is more financially independent than the other and perhaps content to forgo their own share to benefit their sibling. There are a myriad of other examples why a change might be worth considering.
What if there is no will?
In the case of an estate where there is no will, intestacy rules will prevail and this may not provide for those left behind in the fairest way possible. One of the most compelling reasons to make a will is to make sure the intestacy provisions do not apply. In many circumstances the intestacy rules can be relevant, in others they are inadequate, counterintuitive and lead to odd results as to who benefits. This can be costly to administer an estate – much more so that the costs of putting a will in place.
Changing the way an estate is to be distributed can allow beneficiaries to ensure that a family member, close friend, or a person who was a significant part of the deceased’s life who would otherwise miss out, will be provided for.
The best example of this is in the case of unmarried couples. There is a common misconception of a ‘common law wife’ benefitting like a spouse – that is not the case with the intestacy rules no matter how long term or serious the relationship. Varying an intestate estate of someone in this situation can allow for the deceased’s partner to inherit rather than, say, the deceased’s sibling.
Another consideration can be tax efficiency: the intestacy rules are designed to try to ensure that close family members are provided for and they have little concern for tax. As such, varying those provisions might be advantageous when it comes to how much tax an estate will be liable to pay.
Disclaiming (giving up) a gift
If you do not wish to receive a gift due to you from an estate, without being concerned about who else should, you may disclaim your inheritance. You may disclaim your gift in full as long as you have not accepted any part of it.
If you are due to receive several gifts from the same estate, you can disclaim any one or more of them without necessarily giving up your right to the others. If you disclaim any one individual gift you give up your right to that particular gift in its entirety.
If you choose to disclaim any gift, the estate will be distributed as though you have died before the testator and the will or intestacy rules will determine who should receive your gift instead. You have no control over its destination. For this reason, disclaiming is not as common as the alternative, which is to enter a of variation of the estate.
Varying an estate
Rather than disclaiming a gift, an individual can agree to vary their entitlement to inherit (either by way of the will or intestacy rules). This is a more controlled, flexible way of changing entitlement than simply disclaiming entitlement in its entirety.
By varying an entitlement to inherit, the individual varying can decide what entitlement to retain, what to give up and perhaps most importantly, who to give up in favour of, rather than simply relinquishing any benefit and allowing either the will or intestacy rules to take effect.
In a similar way to a disclaimer, the variation operates to allow another family member or significant other to benefit, or benefit more than they would have otherwise, or create a different, potentially more tax efficient outcome overall if the inheritance is redirected to a specific person. Due to the extra control and flexibility a variation offers, it is often the preferred choice for a beneficiary who has chosen not to receive some or all of their inheritance.
Formalities of a Disclaimer or Deed of Variation
Any disclaimer or variation must be effected within two years of the date of death for it to retrospectively effect the inheritance and capital gains tax positions that would otherwise be the case. It is still possible to disclaim or vary an estate beyond that timeframe, but the potential inheritance and capital gains tax advantages will be lost.
As with the majority of legal actions, there are formalities to abide by and while a disclaimer can be made verbally, it is best practice to record the decision in writing if for no other reason than to have a clear record. A variation on the other hand must be in writing.
It is worth bearing in mind that while some disclaimers and variations are very simple, where there are trusts and other more complex provisions involved, the approach to a disclaimer or variation is unlikely to be straight forward and to avoid any unintended outcomes, always best to seek legal on the particular circumstances.
How can Furley Page help?
Giving up an inheritance does have consequences for you and for the estate, and you should seek advice before disclaiming or varying your interest so that you are content it is the right decision, and you go about it in the best way.
We can advise you on disclaiming or varying an interest in an estate, as well as on the probate process in general, to help you make sure that you are making the best decision and that your choices are clear and legally binding.
For further information, please contact our Private Client Team on 01227 763939.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.