Following Eric’s untimely death, Jing has returned to Singapore. Eric had died intestate, as he had not made a new will following his marriage to Jing which automatically revoked his earlier will, under which he left his whole estate to his two children, Peter and Jane.
Under the intestacy rules, Jing is entitled to roughly one half of his estate and his children to the other half.
Peter is upset that his father had not put in place a succession plan. As a result Jing will receive a significant part of his father’s estate, despite having only been married for a relatively short period of time and despite this being contrary to what his father and Jing had agreed in their pre-nuptial agreement.
Jing however recognises that Eric would have wanted both his children to carry on his construction business, EW Ltd, though Jane had shown little inclination or enthusiasm for doing so.
Knowing that her relationship with her step-children is unlikely ever to be harmonious, Jing decides that she wants a clean break with Eric’s family and to honour the terms of the pre-nuptial agreement under which she had agreed not to claim any interest in either EW Ltd or the family investment company he had established, W Family Investment Company Ltd.
As Jing is able to support herself financially and wants to concentrate on her own business interests, she takes advice from her solicitor as to whether the distribution of Eric’s estate can be altered so that the assets pass to Peter and Jane instead of her. She would like to keep only the London house that she owned jointly with Eric.
A variation is a device that is available to a beneficiary of a deceased’s estate who wants to alter what he is entitled to receive from the estate, whether under the terms of the deceased’s will or the intestacy rules. The beneficiary can rearrange or redirect the interest that came to him originally from the deceased’s estate.
A variation can be made during the administration of an estate or after it has been finalised, when assets may already have been transferred to the original beneficiary.
If the variation is made within two years of the deceased’s death, it will have retrospective effect for inheritance and capital gains tax purposes and the transfer will be treated is if it were made by the deceased rather than the beneficiary.
A variation can be used for retrospective tax planning to transfer assets which qualify for relief (e.g. business or agricultural property relief) which might otherwise be wasted where, for example, such assets pass to a surviving spouse and so are exempt under the general spouse exemption.
Jing is advised that she can vary her entitlement under the intestacy rules and redirect Eric’s assets to his children. If she does this within two years of Eric’s death, it will be treated for inheritance and capital gains tax purposes as if the assets were transferred by Eric and not by Jing.
Jing’s solicitor goes on to explain that she will have to pay UK inheritance tax on the value of Eric’s half share of the house. As Jing is still treated as having a Singapore domicile for UK tax purposes, she is not automatically entitled to the full spouse exemption.