deed of assignment intestacy

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Assignments, Disclaimers and Powers of Appointment

          Assignments, Disclaimers and Powers of Appointment can alter the distribution of a decedent’s estate.    

          First what is and who can make an assignment? A person who has a vested — legally enforceable — interest in a decedent’s estate can “assign” – i.e., transfer – part or all of their interest to another. Generally, an inheritance vests upon the decedent’s death.  An assignment is a gift by the assignor making the assignment to the assignee receiving the assigned interest.    Assignments create tax issues for both the assignor and assignee.   

          For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs.  Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights.  The assignment is then filed with the Court.  Dad’s estate, less expenses and debts, is distributed entirely to the daughter. 

          If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s).  There is no reassessment exclusion for any transfers between siblings.

          Assignments, however, almost never apply to a beneficiary’s interests in a trust.  Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution.  The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors. 

          Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance.  You cannot force someone to receive a gift or an inheritance.  To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies.  Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest.  A disclaimer is not a gift by the person disclaiming.  Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset. 

          The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift.  We see who is then entitled to inherit. 

          For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation.  The beneficiary survives and timely disclaims.  The beneficiary’s living descendants would then inherit by right of representation. 

          Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use.  A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate.  The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors.  Powers of appointment are used for a variety of estate planning reasons. 

          For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate.  The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.

          Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney.  There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney. 

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Assignments, disclaimers and powers of appointment can alter the distribution of a decedent’s estate, each can alter the distribution of a decedent’s estate.

For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs.  Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights.  The assignment is then filed with the Court. Dad’s estate, less expenses and debts, is distributed entirely to the daughter.

If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s).  There is no reassessment exclusion for any transfers between siblings.

Assignments, however, almost never apply to a beneficiary’s interests in a trust.  Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution.  The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors.

Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance.  You cannot force someone to receive a gift or an inheritance. To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies.  Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest. A disclaimer is not a gift by the person disclaiming. Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset.

The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift.  We see who is then entitled to inherit.

For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation.  The beneficiary survives and timely disclaims. The beneficiary’s living descendants would then inherit by right of representation.

Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use.  A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate. The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors.  Powers of appointment are used for a variety of estate planning reasons.

For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate.  The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.

Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney.  There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney.

Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at [email protected] and 707-263-3235.

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Understanding Intestacy (Part 2): What to do with an intestate estate and Deeds of Variation?

2nd January 2024

In our first blog on intestacy , we discussed the intestacy rules and who will inherit if someone dies without leaving a Will. In this second blog, we look at what you can to do to vary an inheritance received under the intestacy rules.

You will have seen in our first blog that the rules of intestacy are inflexible and can lead to less than desirable outcomes for all involved. A beneficiary who does not want to receive the whole of their inheritance can vary their own entitlement by entering into a Deed of Variation, also sometimes known as a Deed of Family Arrangements.

Deeds of Variation can also be used to vary provisions under a Will, but this blog will focus on their role in an intestacy situation.

The purpose of a Deed of Variation

A beneficiary can use a Deed of Variation to give away the whole or part of their entitlement to someone else, including to someone who would not otherwise benefit from the estate. They may also want to put their entitlement into a trust or make a gift to charity.

A beneficiary may want to use a Deed of Variation if they feel they do not need the inheritance and would prefer someone else, such as their children, to inherit in their place. They may also want to share their entitlement with someone who does not benefit at all under the intestacy rules, for example, an unmarried partner or close friend of the deceased.

Beneficiaries might also be thinking of their own estate planning arrangements and prefer to divert the inheritance away from their own estate. This may be to limit their inheritance tax liability or to preserve certain entitlements. For example, someone planning to buy their first home may be prevented from claiming First Time Buyers’ Relief from Stamp Duty Land Tax (or Welsh Land Transaction Tax in Wales) if they inherit an interest in a property. They may want to vary their inheritance to give the property interest away and so retain their ability to claim First Time Buyers’ Relief which might be worth more to them overall.

Beneficiaries must be careful not to reduce their assets for the purpose of maximising the benefits they can receive from the state or minimising the amount they contribute to care fees. Doing so is known as a willing deprivation of assets and is not permitted by law. This is different from legitimately improving the tax efficiency of your estate or utilising available reliefs and exemptions.

A Deed of Variation is also commonly used to distribute assets in a way that minimises the Inheritance Tax or Capital Gains Tax liability of the deceased person’s estate, by making use of tax reliefs or exemptions.

Limitations

Whilst a Deed of Variation is a helpful tool in these situations, it does have limitations. A beneficiary can only make changes to their own entitlement. It cannot be used  to prevent someone inheriting unless they are agreeable and willing to enter into the Deed, irrespective of the perceived fairness or unfairness of their inheritance. There is nothing a family member can do to stop a relative, perhaps who has not seen the deceased for many years, receiving a share of the estate ahead of those with a closer relationship to the deceased if that is what the intestacy rules provide and the person inheriting does not want to alter the position.

A Deed of Variation also cannot change who is entitled to take out the Grant of Letters of Administration (the equivalent of a Grant of Probate in an intestacy). There is a hierarchal list of who an apply for the Grant, which largely reflects the list of who will inherit. To be able to apply for a Grant yourself, you must show there is no one in any of the groups above you. Beneficiaries unhappy with the administrator must make a separate application to the court to remove someone entitled to take out the Grant and appoint someone in their place.

The only way to have complete control of who inherits an estate and who is legally responsible for its administration is to prepare a Will during your lifetime.

The requirements of a Deed of Variation

There are formal requirements for a Deed of Variation to be valid.

It must be in writing, signed by the person varying their entitlement and the signature must be witnessed. The administrator of the estate will also need to sign the Deed if additional inheritance tax is payable as a result of the variation and if a charity is inheriting its representatives will also need to sign the deed (or at least show that they are aware of the content)

The terms of the Deed must be certain and make clear what part of the estate is being varied. The variation must also be made within 2 years from the date of death, after which time no variations can be made. Once made, a variation cannot be revoked.

How can Blake Morgan help?

It is vital that a beneficiary seeks specialist advice before entering into a Deed of Variation, to ensure there are no unintended consequences and that it complies with formal requirements. It is always preferable that someone makes a Will and reviews it regularly to avoid family members being left in this position. Our specialists would be pleased to assist you in preparing a Will or providing advice if you are the administrator or beneficiary under an intestacy .

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Deed of Assignment

I have been instructed to deal with an intestate estate by the deceased’s only sibling. The deceased was not married and had no children. His parents are still alive but do not want to be involved in the administration or benefit from the estate which they want to go my client. My understanding is that the best way to deal with this is for the parent to assign their interest to my client, who can then apply for the grant pursuant to NCPR r24. However I am unable to find a precedent Deed of Assignment. Can anyone point me in the right direction?

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I suggest they use a deed of variation, effective under s.142 Inheritance Tax Act 1984 (and s.62(6) Taxation of Chargeable Gains Act 1992?) so as also to avoid the potential tax issues.

A variation can be made pre-grant, even under an intestacy, enabling the new beneficiary to apply for the grant.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

While a deed of variation is effective for inheritance tax, and indeed capital gains tax, purposes, the Probate Registries do not recognise a deed of variation.

For Probate purposes the parents will either have to assign their entitlement over to their son or they can disclaim their right to the estate and the son could then make the application as the next person entitled to the estate on intestacy. One of them could of course appoint their son as an attorney for the purpose of applying for the Grant, which could then be followed by a deed of variation for inheritance tax and capital gains tax purposes.

Cliona O’Tuama

I agree with Cliona’s post, but if a disclaimer is used do ensure that there are no other siblings or issue of deceased siblings.

In any event, you may wish to check the parents’ finances - to consider whether intentional deprivation rules may apply, and whether there are any creditors who may be disadvantaged.

Kevin Mullen

Hi, I was wondering what you decided to do in the end? I have a similar matter where the Probate Registry has advised me to get the brother of the deceased (the entitled beneficiary) to do a Deed of Assignment to assign his interest to his son (rather than a disclaimer) and so that the son can apply for the Grant. I am concerned however about the tax consequences. It is important that the deceased’s estate is not added to the brother’s as he is 87 and his estate would already taxable. Is there another document referring to the provisions of s 142 (1) of the Inheritance Tax Act 1984 and s 62(6) of the Taxation of Chargeable Gains Act 1992 that i should also get the brother to sign or is this not necessary?

Many thanks

Helena Grady

An interesting view from the Probate court - clearly with no eye to any wider implications of the suggested course of action. Was their “advice” accompanied by a statement that they do not give legal advice?

If the brother does not wish to receive the inheritance then absent a disclaimer, he should consider a deed of variation, effective under s.142 IHTA 1984 and s.62(6) TCGA 1992. This will avoid him making a gift of the inheritance for IHT purposes.

Whilst one would hope that the Probate team would accept this as sufficient to enable the beneficiary of the variation – the son? – if whoever deals with it there is looking for something labelled “Deed of Assignment” it may take a little longer to get them to appreciate the variation is as effective as an assignment for their purposes.

I have now encountered the same problem, slightly complicated by the fact that, before I was instructed, the person entitled under the intestacy rules executed a Deed of Renunciation so there is no scope for her to just appoint an attorney to apply for the Grant and then do a Deed of Variation.

Although I sent them the draft Deed of Variation to have a look at (a Withers precedent one) the Probate Registry are insisting on a Deed of Assignment. I’m proposing to reword the Deed of Variation so that the beneficiary ‘wishes to vary… by assigning etc…’ but I just wondered if anyone has come across a suitable precedent accepted by the Probate Registry since the original post?

I have found out that the Probate Registry do have guidance saying ‘some Deeds of Variation contain the necessary assignment and should then be referred to the Registrar…’ However, their starting point, in an email to me is ‘a Deed of Variation is a document that is used to vary the inheritance tax liability and as such does not contain the necessary wording required to assign the right to the estate of another’. …

I would be grateful of any suggestions to help me advance this application.

Hi Justine,

I have a similar case and wondered how this was resolved with the Probate Registry?

My client is nephew of deceased, an unmarried intestate with no children or surviving parents. There are 2 elderly siblings of deceased wishing to vary in favour of their own children, ie adult nieces and nephews of the deceased.

The Nephew wishes to extract letters of administration on behalf of his parent (all family agree to his appointment).

Can you recommend a Deed of Renunciation (eg Withers) for this or other way forward to enable issue of the Grant of letters of Administration to nephew.

Specific terms of the Deed of variation haven’t been agreed as yet but nephew wishes to act and is the preferred Administrator. Or is a power of attorney by surviving siblings who both have capacity but don’t wish to act the recommended way forward?