Variation Trust

An individual may become entitled to funds from a recently deceased relative or friend. These funds will increase his personal estate for inheritance tax (IHT) purposes at a time when he may be considering ways of mitigating the tax burden on his own death.

A potentially significant IHT liability may be avoided if, within two years following the death of the deceased relative or friend, and preferably before the estate administration is completed, a Deed of Variation is exercised to create a trust. The deed allows the deceased relative or friend’s executors to redirect the entitlement under the will to the trust and consequently for IHT purposes the deceased is deemed to have created the trust. The individual can be a beneficiary of the trust, if required.

This is an extremely efficient way of avoiding a potential IHT liability on death but allowing the individual to benefit from the assets during his lifetime.