What is a Deed of Family Arrangement.
A deed of family arrangement or deed of variation (main page) does exactly what it says – a way of the family rearranging the proceeds of the Last Will after the person has died. They are not templates, deeds of family arrangement are specific to every situation, and if they are not correct the consequences can be unfortunate. Anyone who loses out must agree and not be compensated, but children and those without mental capacity may well require Court approval to agree to a deed of family arrangement.
Why use a Deed of Family Arrangement?
1) To Save IHT.
The classic scenario is Mum leaves everything to her two children, because she made the Will 50 years ago when they were kids. Mum is reasonably well off, but both the “kids” are now pretty wealthy (and retired) and have no need of an extra £200,000 each. In fact, if they inherited it, they would pass it on to their children, thus creating a potential liability to Inheritance Tax if they die within seven years.
Then to make matters worse, the grandchildren decide their kids need it more and pass it straight on to Mum’s great-grandchildren. So we have potential tax liabilities on the first death (which we will ignore as it is probably too late to sort that out), then on the gift from the children to the grandchildren, then on the gift to the great-grandchildren. So £100,000 could become £60,000 which could become £48,000. Not great planning to have that sort of potential liability for no good reason!
What a deed of family arrangement does is allow the children to retrospectively change Mum’s Will so (for example) the money could be split between the grandchildren and the great-grandchildren. This avoids increasing the potential tax bills if either the original inheritors, the children, should die within 7 years.
2) To avoid loss of family assets.
Sometimes a big inheritance can precipitate the end of a marriage as the non-family partner see a pot of gold and tries to take away half of it to start a new life with. Or maybe the widow of a family member needs help, but the family wish to avoid her passing the inheritance on to a new husband. A deed of family arrangement, in the right circumstances, can transfer the assets into a trust which can LEND money to the widow, interest-free but repayable on demand. She is then supported by the family money as long as she needs to be, but will have to repay it on death or perhaps if she gets a new partner, and the repayment won’t damage the grandchildren – who will probably inherit it in due course.
Exactly the same procedure can often be used to look after family members who are on benefits (which would otherwise be lost) or perhaps a member in financial difficulties whose inheritance would otherwise be lost to creditors or care fees.
A deed of family arrangement (same as a deed of variation) must be completed and signed within 2 years of the death and (where relevant) a copy given to the taxman. So it is not something to start at the last minute and expect it to be easy. In some cases, it will be necessary to get Court permission for a deed of family arrangement: for example where any beneficiaries under the age of 18 are affected who do not actively benefit. Similar problems will arise where a beneficiary does not have the ability to make their own decisions.
Deed of Family Arrangement enquiry.
If you wish to see whether one might help, please download the Deed of Variation enquiry form to the right. We have given some examples of where a deed of family arrangement MAY be helpful, but every case is individual, so full advice is essential – and not too expensive with us!