Introduction to trusts: supplementary deeds deed of variation or family arrangement
An instrument or deed of variation or family arrangement enables beneficiaries of a deceased’s estate to alter the distribution of that estate. It is sometimes known as a deed of assignment (TSEM1845), or deed of surrender or release (TSEM1850).
A beneficiary normally executes a deed within two years of the death. This means that changes attributable to the deceased can be beneficial for Capital Gains Tax, and inheritance tax purposes. But with effect from 1 August 2002 the changes will only be effective from the date of death (TCGA92/S62(6) and IHTA84/S142) if the deed contains a statement of intent that it is to take effect for tax purposes. Deeds of variation may be effective for Capital Gains Tax and Inheritance Tax but they do not change either the general law position or the Income Tax position. There is no equivalent legislation to make these deeds work retrospectively for Income Tax purposes. For the purposes of Chapter 6, Part 5 ITTOIA the deed may have the effect of changing the identity of the person who will be deemed to have received income.
The settlor of a trust created by a deed is not the deceased, unless it’s a disclaimer (TSEM1840). It is the person who was entitled to the gift that has now gone into trust. The gift can be capital or income or both. The case of Marshall v Kerr (67 TC 56) is relevant. There may be more than one settlor.
Receipt of a deed of variation or family arrangement
If the deed creates a new trust, advise the trustee to complete the on line Trust Registration Service to obtain a Unique Taxpayer Reference number for the trust.
If you have any problems with the Income Tax position of such a deed refer the case to HMRC Trusts & Estates Technical Edinburgh (see TSEM2001) for advice.
Marshall v Kerr 67 TC 56