The difference between a variation and a disclaimer
To disclaim a benefit under a will or an entitlement under an intestacy is to refuse to accept it and although a disclaimer can be retracted, it can only be retracted if no other person has relied upon it to their detriment. A disclaimer can only be made if the person seeking to disclaim has not already benefited from the inheritance which it is sought to disclaim. The inherited benefit cannot be accepted as to part and refused as to part; it is all or nothing, although if more than one gift is made to the same beneficiary in a will or inherited on intestacy, one gift may be accepted and the other or others may be refused and disclaimed, provided they are clearly separate gifts.
On the other hand, to effect a variation one first accepts the gift and then varies it so that another or others benefit, either in addition to or to the exclusion of oneself. This point is very important because it necessarily follows that having accepted the inheritance in the case of a variation, one can decide its further devolution and decide who is to benefit from it, but having refused the inheritance in the case of a disclaimer one has no further control over it, and must devolve according to the other provisions of the will or the laws of intestacy or otherwise, as the case may be.
It should be noted that it necessarily follows that although it is possible to effect a variation of the devolution of jointly owned property which is inherited as a result of being a surviving joint tenant, it is not possible to disclaim survivorship rights.
It follows that the different inheritance, capital gains and income tax consequences result from the difference in the nature of a disclaimer and a variation, and as stated above, before making a decision, it is essential that a specialist tax advice be sought.
Conditions for tax-effective variations and disclaimers
If the Revenue is to consider the change as having been made by the deceased and there is to be a saving of inheritance and/or capital gains tax, the following conditions must be complied with:
The change must be made in writing and in the case of a variation all the parties affected must be parties to the document to show they consent to the changes. However, in the case of a disclaimer, only the person making the disclaimer is a party to the document
The disclaimer or variation must be made within two years of the death
The document which makes a variation must contain a statement which must be made by all parties to it to the effect that it is to have effect for the purposes of inheritance tax and/or capital gains tax.
If the variation result in more tax becoming payable, the personal representatives must be parties to the documents unless, in that capacity, they hold no or insufficient funds to pay the additional tax. If additional tax is payable a fine can be imposed upon all parties to the document unless a copy of the document and a note of the additional tax payable is supplied to the Revenue within six months of the date of the document.
There is no necessity for a disclaimer to state that it is intended to take effect from the date of death; it does so automatically.
To consent to the change a party must be of full age and have full legal capacity. If this is a problem, for example if a person is under the age of 18, or not of sound mind or if a benefit which it is desired to change has been given to a person who has not yet been born, a court can be asked to consent on that person’s behalf, but a court will only give consent if it considers that the transaction is for the person’s benefit. Moreover, an application to a court is expensive. The fact that court proceeding are not quick can also make it difficult to comply with the time limit which will not be usually extended.
It is not possible to disclaim an inheritance which is expected from the estate of someone who has not yet died.