What is the meaning of deed of variation? What are the differences between a deed and an agreement? Can a deed be discharged?
They relied on an attendance note prepared by the solicitor who had drafted the deed. The will of the deceased divided his estate equally between his three children and his widow.
The deed of variation gave everything to his widow so no IHT was payable. Despite this apparent victory for the taxpayer, HMRC have indicated that the Deed will fall foul of the principle that those who give up rights under a Deed of Variation should not receive any extraneous consideration for doing so. The case could have a significant impact on the use of Deeds of Variation to make use of the spouse exemption.
See full list on lawskills. The deceased left his estate in four equal parts to his widow and three sons. Their solicitor, Mr Evans, made the sensible suggestion that the parties execute a Deed of Variation to pass the deceased’s whole estate to his widow, so that no inheritance tax was payable.
HHJ Hodge QC had to decide whether the claimants (the two executors) had discharged the high burden of proof required in a rectification claim.
They were required to provide convincing evidence of mistake on the part of all the relevant parties to the deed. The judge considered who the relevant parties were to a Deed of Variation i. S1only requires the consent of the executors if a Deed of Variation increases the tax payable. However, he held that the widow was a relevant party as well as the three beneficiaries giving up their rights. S1would affect her position as well as theirs. Unfortunately, the attendance note providing evidence of mistake equally showed the solicitor advising the widow to make use of the spouse exemption and then make cash gifts to her sons which would also be free of IHT (if she survived seven years).
In Lau, the deceased’s step-son disclaimed a £660legacy which then passed to the deceased’s widow as part of the residuary estate. Very shortly after receiving the money from the estate, the widow passed £1m back to the step-son. The widow argued that the £1m was nothing to do with the disclaiming of the legacy – it was partly a wedding present and partly a payment to set the step-son up in business, which she had promised long ago.
The judge squarely rejected this evidence, in particular because a solicitor had advis. Whatever the outcome of the case, it will not affect all planning using Deeds of Variation to take advantage of the spouse exemption. The rule against consideration does not apply where the consideration comes from within the deceased’s estate.
This can be useful where the deceased owned property eligible for agricultural or business property relief or excluded property (which is included in the meaning of “estate” for the purposes of s142). A Deed of Variation can rearrange the distribution of the assets so that an exempt beneficiary (a spouse or a charity) receives the otherwise chargeable property and the non-exempt beneficiary receives the property eligible for reliefs or excluded property. This will reduce inheritance tax but will not be caught by s142(3) as the only consideration comes from the deceased’s estate.
Of course in any planning of this nature, there is the inevitable risk of HMRC attempting to apply GAAR, and executors and beneficiaries should be aware of this. While the rectification claim shed light on the principles behind rectification of a Deed of Variation , the tax tribunal decision will likely be more illuminating for taxpayers. It should give those advising bereaved families a better understanding of how they can safely advise on post-death use of the spouse exemption.
A beneficiary who gives up their entitlement makes a lifetime disposition, which may be a gift (a voluntary disposition) or may be for consideration. Evidence suggested that the solicitor who drafted the Deed had worked from an out of date precedent. Well a deed does not need consideration (whereas a contract does) so if the parties vary their contract by way of Deed then you never need to worry about whether consideration has been properly given between the parties. A deed of variation will be the most effective and unequivocal method to vary a deed. Indee where a variation is for the benefit of, and to be relied upon by one party only, a deed of.
In the event of dispute as to whether parties have reached a valid agreement to vary their contract, the court will determine the issue by considering the relevant facts in light of the usual rules of contractual interpretation. How can parties vary a contract? Since the variation cannot be underpinned by consideration that is outside the estate , making it by deed ensures that it is enforceable. In the absence of such a consideration, a variation can be effected by deed.
A contract can, however, be varied by an oral agreement or by its parties’ conduct , even where the contract itself contains a “no oral variation” clause. As a general principle, a deed cannot be release discharged or varied except by way of another deed. Of course, if the assets have been distribute the property will have to be recovered and physically redirected.
All beneficiaries affected by the variation must agree and be party to it. It must be in writing (not necessarily in the form of a deed ). If the redirection increases the amount of tax due on. This Variation Agreement – Changing Terms of a Contract is executed as a deed to avoid any dispute as to its validity due to lack of consideration. It allows the parties to change the terms of an existing contract by inserting, deleting and amending words, paragraphs and clauses. If there is no such consideration , then the variation will need to be effected by deed.
Tip 4: Consider if a deed should be used. As a variation is a contract in itself, either consideration is required for the variation to be effective or the variation must be by way of a deed. Also, contracts (or variations) relating to the sale of land will need to be done by a deed. Because a deed is not a contract, many state laws do not require a deed to recite a specific amount of consideration. But to avoid title issues, it is still good practice for the deed to recite at least a nominal amount of consideration (usually $10), even if no money changes hands.
For example, during a project A may be under an obligation to provide B with a financial guarantee to secure its obligations.