Probate and Administration - Variations and Disclaimers (10) Flashcards
Why might a beneficiary want to disclaim or vary their inheritance?
Variations and Disclaimers: Beneficiaries can disclaim or vary their inheritance under a will after the death of the testator.
(1) Moral Reasons: They may believe another party deserves a larger legacy.
(2) Statutory Provision: They may do so to negotiate settlement of a statutory provision claim.
(3) Tax Advantage: It may be tax advantageous to do so (IHT/CGT).
How can an inheritance be changed?
Types of Arrangement: There are three potential arrangements.
(1) Lifetime Gift: A simple gift to the intended recipient from the beneficiary.
(2) Disclaimer: The gift is disclaimed, and passes as if the beneficiary had predeceased the testator.
Constraints: Must apply to the entire gift. Cannot occur if the gift was ‘accepted’ or intermeddled with.
(3) Variation: The gift is redirected to a chosen recipient.
Requirements: Beneficiary must be sui juris, unless court orders on behalf of child or incapable (Variation of Trusts Act 1958). Must be in their best interests.
What is reading back of taxation?
Reading Back: Unless ‘read back’, variations and disclaimers are PETs of the beneficiary, and subject to IHT and CGT. If ‘read back’, they are treated as being made by the testator, which is generally more tax advantageous.
(1) Written and Signed: Must be in writing and signed by the original beneficiary. Usually takes effect as a deed.
(2) Limitation Period: Must be made within 2 years of death.
(3) Applicable Law: Must state which tax law is to apply.
Inheritance Tax: S142(1) Inheritance Tax Act 1984.
Capital Gains Tax: S62(6) Taxation of Chargeable Gains Act 1992.
(4) No Consideration: Must not be made for any consideration.
