Introduction

Oftentimes when dealing with estates it is necessary or desirable to alter the bequests made in a will or the benefits that arise on intestacy. The methods of doing these tend to be deeds of family arrangement or deeds of disclaimer. However, at times some practitioners can blur the lines between the two or use the concepts somewhat interchangeably. They are however, distinctive tools in the armoury of the probate solicitor. In addition, there is also the option of using appropriation under s. 55. The nature of these blogs do not allow a detailed analysis of the three and we will look at here, first deeds of family arrangement and deeds of disclaimers. In later blogs we will look at s. 55 appropriation

Deeds of Disclaimer

The main defining distinction between a deed of disclaimer and a deed of family arrangement is that the deed of disclaimer can change the position as of the date of death, while the deed of family arrangement leaves the death position in place and re-organises around the benefits accepting the death position.

Most times what clients and practitioners tend to want is to get to the position that can be arrived at by a deed of disclaimer, but their starting point is a deed of family arrangement and they can get stuck.

The most challenging aspect of using a deed of disclaimer as distinct from a deed of family arrangement is that element of deed of disclaimer law which states that you cannot partially disclaim a bequest or the share on the residue unless permitted by a will. One method of dealing with this is through disclaimers for consideration. The consideration piece is where the rubber hits the road as regards drafting a disclaimer. It is through the consideration part that the re-balance can be obtained. So it can be the case that a residue share is disclaimed in consideration of receiving a house. This may result in the beneficiary receiving an asset greater or less than originally envisaged or that the value of the asset foregone is less than the value of the asset obtained. However arrangements tend to be structured to ensure that everyone ends up in the same position as envisaged by the will but with the assets redistributed.

Deeds of Family Arrangement/Deeds of Variation

Deeds of variation are post-death and recognize the post-death status quo. Why would that approach be used rather than a deed of disclaimer? For a couple of reasons. Generally, because it more naturally follows the reality of what has happened. So a house is left four ways and one of the parties agrees to buy out the other three.

Or there is a passage of time and the benefits have become fixed in the minds of the beneficiaries and it is more natural for everyone involved to sell or transfer their share rather than disclaim.

Or it could be the case that beneficiaries may have taken possession of their share or enjoyed the benefit in some way thus excluding the possibility of a disclaimer.

Tax Position

When looking at deeds of family arrangement the three taxes of CGT, CAT and stamp duty must all be examined. While those taxes are in play, there may not be a liability for all of them, but stamp duty generally tends to be unavoidable. The reason for this, is that in these cases deeds of family arrangement happen soon after death. There is a CGT exemption for swapping of shares if they occur within 2 years after death. Further, deeds of family arrangement don’t tend to involve gifts. So family member A agrees to buy out the interest of family members, B, C and D, or family member B gives a share to family member A in return for another asset of equivalent value.

In the cases of disclaimers, the CAT position must be examined, but CGT does not apply to a disclaimer. It still remains an open question as to whether a disclaimer for consideration is stampable. While commentators have indicated that disclaimers for consideration are stampable, it tends not to occur in practice or not be an area that financial advisors flag as being a matter to be factored into computations.

Hopefully this is of assistance and in later blogs we will be looking at using s. 55 and appropriation as a means to re-structure assets post death. If you have any probate, will drafting or tax issues, please do not hesitate in reaching out through colm@theprobatehub.ie or raise a query through the website.