Deed of variation questions

[ronster17]

Hi everyone

I'm trying to help my Dad do some estate planning and am a bit confused by what a DOV is actually useful for.

I can totally see how it helps if I'm left something by my parents and I instead give it to my children, I can see how useful it is if we want to distribute assets more evenly or to give to charity.

My problem is paying too much IHT if my Dad passes away within next 7 years and I can't see how DOV can change that.

Are DOV only useful for putting up to £325k into trust on death? If the estate is say 2m, what IHT is due on anything over the NRB? is it 20% same as adding to trust while alive or what ?

Also, If CGT dies with the parent then how does a DOV change that?

any advice is appreciated. Thanks

[dslippy]

Deeds of variation work brilliianty to mitigate IHT liability. However, once you get to the 2 million pounds level, more advanced efforts may be needed.

OTOH somebody needs to pay tax.

[ronster17]

Thank you for that Dslippy. He can get under the 2m bracket easily enough, but I don't get how the DOV helps if it's only going to allow the use of the NRB. Surely it's too good to be true that the DOV allows use of more than NRB?

[Sam101]

The basics are that if a married couple have suitable Wills, they can arrange to maximise the allowances on death.

Each person has a personal allowance of £325,000. On top of that if they own property, they have a residential allowance of £175,000 which can be claimed. Also, each person has an annual gifting allowance of £3000 and if not used previously, can be carried back one year. Other gifting allowances are also available that you can easily look up.

When someone dies that has a Will, then that will can be varied as long as it is within 2 years of death. This can be very helpful when a Will has not taken advantage of allowances, or made a Will i such a way that additional taxes are payable.

Often Wills are made between a married couple that say the first to die will leave 'up to the nil rate band allowance' in Trust to their children on second death, which may improve the tax position in leaving it all to their spouse, but even though that first nil rate band has been gifted into Trust, there are ways to ensure that the surviving spouse can be supported.

Also, where a family residence is owned as Tenants in Common, (each owning 50%), then the first to die can leave their part of the residence to Trust with a lifetime interest for the spouse, which effectively puts a 'coak' around that value and it is protected for the children (or beneficiaries)

The main benefit of a Deed of Variation is to maximise the allowances and sometimes to redirect inheritance that someone would prefer it to go to their children rather than themselves, as possibly in your case.

Importantly, make sure you fully understand the changes that could be made and do this through a solicitor that would be helpful to you and is STEP qualified. Many solicitors involve themselves in Trusts, but have not been STEP qualified to ensure that thy know all the ins and outs of Trusts.

I Hope this is of some help to you.

[ronster17]

Thank you for that Sam. I was mistakenly assuming that DOV could be helped to add to the limits allowed but I'd made a mistake, it was too good to be true.

I've got a local STEP solicitor to enquire to

Thanks again