Deed of variation of late mother’s will

[Aydel]

My mother died late last year. Apart from two smallish bequests to my daughters, I am the sole beneficiary of the estate. Can I issue a deed of variation and leave my daughters my late mother’s house, rather than the small cash bequests?

Where do you live? Where did your mother live (and die)? How old are your daughters?

Sorry for all the questions, but also, are you (presumably) the sole executor and do you have a solicitor?

Would it mean the estate fell into the inheritance tax bracket?

Hey - probate lawyer here 👋🏼
You have 2 years from the date of death to complete a deed of variation and if you are the sole beneficiary you can vary the residuary estate as you choose.
However you cannot decide to not pay your daughters’ gifts. You can pay the gifts and then do the house on top, unless they agree to not receiving their gifts as well in which case they have to be party to the document.
It’s a really common thing for people to divert money away from their own estates without causing issues with gifting.
I would recommend seeing a solicitor to do this to make sure it covers all the correct provisions.

Thanks all for your help. My mother lived and died in England. Daughters are in their 20s. I did probate myself and there was no inheritance tax to pay. No problem with giving them the bequests as well - thank you for clarifying! If we gift the house and it sells for more than the probate valuation, will they be subject to CGT (as I think we would be?).

We did similar when my sister died and I decided to redirect a large lump sum of my inheritance to my adult children. You are effectively rewriting her will and the house would never have belonged to you but go straight to them. See a solicitor within 2 years of the death and they'll do a Deed of Variation. I think they charged about £200?

@Aydel as you have stated the estate was not liable for IHT then you do not need to worry about CGT. From HMRC’s perspective, the value of the property is unascertained because there is no IHT. If you sell it for so much more that you then have to pay IHT then you will need to report it.

As another poster has said, this will impact your daughters’ rights as first time buyers as although they have received the property as a gift, they still have legal title. So the preferential stamp duty etc will be impacted.

I did probate myself and there was no inheritance tax to pay.

Yes, but was that because the house was left to you as your DM's child, or was the entirety of the estate including the house less than the limit?

You are misunderstanding the point at which IHT on an estate is assessed and charged.

IHT is assessed on the estate as a whole, not a tax on the beneficiaries or the amount they receive.

The only factor that changes this is whether the Nil Rate allowance for leaving your primary home to direct descendants is added to the threshold, and as grandchildren (the OP’s DD’s) are direct descendants that allowance still applies

I understood that if a house was left to the deceased's children it increased the tax free allowance. I thought other relatives could not benefit in the same way.

However, on checking I see I was wrong and it counts grandchildren in the same way so OP would not be affected by the proposed variation: How Inheritance Tax works: thresholds, rules and allowances: Passing on a home - GOV.UK (www.gov.uk)

Does it affect benefits if you do a deed of variation so as to divert an inheritance? (Asking as DH's cousin who has a mental health disability has just had an inheritance of about £16,000, which will mean their disability benefits are stopped, so they want to give it to their baby in a trust instead.)

@Takenwithtea yes it does. If they were to receive an inheritance that changes the threshold for their benefits then it has to be declared and their benefits would be stopped.

There are some other considerations here particularly around capacity. Does your DH cousin have mental capacity? Is someone else managing their affairs by way of power of attorney or deputyship? If they are, then any gift like this would have to be approved by the Court of Protection and would probably be denied for not being in their best interests.

I would definitely recommend seeking advice from a local solicitor here to explore options.

@Takenwithtea if your husband's cousin is receiving any means-tested benefits (so income-related ESA, UC, housing benefit, council tax reduction, etc) then their benefits will be stopped as you say. The disability benefits PIP and DLA are not means-tested so would be unaffected.

Varying a will to divert an inheritance would almost certainly be seen as deprivation of capital and they would be treated as if they still had the money (as notional capital), meaning their means-tested benefits would be stopped even if the money had been put in a trust for their baby and couldn't be accessed. I say "almost certainly", but I really can't imagine any DWP decision maker would view it otherwise. I was in similar circumstances a few years ago and had to just accept the money and have some of my benefits stopped.

If they are on UC and will end up with only a little over £16,000 as you imply, they could spend some of the money between receiving it and the last day of that assessment period. It's only the capital at the end of each period that counts, so if the balance is under £16,000 on that date it could be as though it never went over. I'm sure they'd still have to tell the DWP the maximum amount they had had and what they had bought to bring the level straight back below the threshold, then a decision maker would decide if the expenditure was reasonable and not excessive and done to keep the benefit. A new (but not luxury) kitchen appliance, three-piece suite, or even a car might be reasonable if old ones needed replacing. You can also pay off any and all kinds of debt and this is never considered deprivation of capital when on UC. There'd still be deductions taken until the amount dropped below £6,000, but the benefit wouldn't stop. This only applies to UC. If they are on the legacy benefit income-related ESA the capital counts the day it lands in the account, and paying off non-priority debts such as credit cards is deprivation.

@MyDogCalledMax @flourella I see, thank you. Their condition means they're liable to spend on manic sprees and get scammed easily, forget things or spend inappropriately when having a psychotic episode, but they don't have anyone managing their affairs, just help from family when needed in such situations.

It's the old-style ESA, so it sounds like they'll just have to go through the stress of having their benefits stopped and then reapplying when they've spent it on day to day living. Really hard, because it's so stressful and difficult for a disabled person to get the benefits they need nowadays. It took years for them to get everything they have now, with the help of care workers and doctors.

:(

@Takenwithtea this was my situation as well, but part of my ESA claim is contributions-based so that continued, and when my capital fell below the upper threshold the income-related top-up was reinstated and I didn't have to move to UC. Some legacy ESA claims will be all income-related so would stop altogether, but it's not clear from the ESA letters because they always talk about an income-related entitlement only even if part is conts-based.

Does the cousin know for sure if it all is income-related? I would recommend they simply report the capital to the DWP when they receive it and let them do the admin, rather than tell them they want the claim closed, in case some is conts-based and can continue. If all is income-related it will be UC they'd have to claim when capital drops; if not it will depend on their housing situation whether they claim UC for housing costs or stay on all legacy benefits (a bit complicated and I don't want to bore with what turns out to be another paragraph of irrelevance as I did above!).

Just to add, the DWP asked me to send the full three years' worth of bank statements when I told them my capital was back below £16,000, so they could scrutinise my spending. I wrote a letter explaining any unusual or large transactions and it was all fine even though I hadn't been particularly frugal, but they will want to see how the money has been spent.

Are they able to refuse the gift leaving benefits unchanged?

Can it go back to the estate?

This must have happened before for various reasons.

@flourella thank you, that's helpful. I'll pass the information on. It's all income-related unfortunately as they fell ill in their late teens, I believe.
@Mosaic123 if you're on disability benefits I think that refusing the gift counts as deprivation of assets or something? I'm not sure but from googling, I think the solicitors dealing with the will inform whichever government agencies, so it's seen as intentionally depriving yourself of income.
If there is a way that can be done above board that would save a lot of stress for them.

I doubt it's mandatory to accept a gift but I could be wrong.

For example, imagine if an abusive parent gave a gift in their will to an abused child? They surely would be allowed to refuse it?

As far as I can Google it seems an beneficiary can disclaim a gift.

This what they need to tell the solicitor. Perfectly legal to do this as far as I can tell.

Google: Can a beneficiary refuse a gift in a will? You will see many explanatory articles.

I suggest you speak to a solicitor who is well-versed in that sort of thing. We did similar earlier this year, but we'd got all the variation paperwork signed by the executors and ready, before probate was granted. So you may have left it too late. Seek legal advice, that's my suggestion. They can also help with land registry and title etc.

From my understanding, what's legal is different to what the DWP considers acceptable, so although it's legal to refuse the inheritance, it's still an intentional deprivation of assets and incurs penalties imposed by the DWP.