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What is a Deed of Family Arrangement

The majority of people who make their Will have no idea when they are going to die which means that many Wills prove to be less tax efficient than they could have been.   It can also mean that with the passage of time family dynamics have changed and that the Will is not as relevant as it may have been when it was made.

The law takes this into account and allows that under certain circumstances a deceased’s Will can be changed after their death.

A Deed of Family Arrangement (sometimes called a Deed of Variation) allows a beneficiary mentioned in a Will, or a beneficiary under the laws of intestacy if there is no Will, to redirect his or her benefit to another person of his or her choosing.  This means that beneficiaries can take full account of family circumstances, and the tax laws at the time of death, and the estate of the deceased can be distributed in the most tax efficient way possible.  However, as you would expect, there are strict rules that have to be followed for a Deed of Family Arrangement to be valid. These rules include the following:

·        A Deed of Family Arrangement can only be made if all the beneficiaries are over the age of 18 and those affected, and the executors, agree.

·        The Deed of Family Arrangement can be made at any time after a person has died but the Deed must be executed within two years of the date of death if any tax variation is being made.

·        For the deed to be effective for inheritance Tax purposes the Capital Taxes Office should be informed within six months of the deed being made.

·        For the deed to be effective for Capital Gains Tax purposes the HM Revenue and Customs should be informed within six months of the deed being made.

Gifts made under the terms of a Deed of Family Arrangement are treated as having been made in the Will of the deceased.  This means that the original beneficiary does not need to live for the normal period of seven years after making the gift for the gift to become free from Inheritance Tax.

For this reason Deeds of Family Arrangement are a vital part of Inheritance Tax planning for many people,

A common use for Deeds of Family Arrangement are where a surviving elderly parent dies leaving their estate to their children where one or more of the children is sufficiently wealthy so as not to need their legacy.  A Deed of Family Arrangement will enable the parent’s Will to be amended so that that child’s share passes to their children, the deceased’s grandchildren, either directly or in Trust thus saving 40% Inheritance Tax.

To find out more or to discuss your own situation please call Simon Shaffer on 020 8952 0242 or email him at simon.shaffer@moerans.com.

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