What is a Deed of Trust and Why Do You Need One?
If you’re buying a house with someone else, you may want to think about getting a Deed of Trust to protect your investments.
When you buy a property with another person, you will be asked whether you want to be joint tenants or tenants in common. These are quite different, but it is entirely up to you which one you choose depending on your individual circumstances.
What’s the difference between joint tenants and tenants in common?
Ordinarily, when you buy a property, you will be listed as joint tenants, which means that if one of you were to die, the other one will inherit the property outright.
If you’d rather your share of the property went to family, or if you are contributing different sums of money, you can opt to be tenants in common and have a Deed of Trust created to protect your individual shares.
What is a Deed of Trust?
A Deed of Trust (also called a Declaration of Trust) is a legal document stating the division of ownership of a property. It is used by tenants in common who have paid different amounts into the purchase of their property, so that if they come to sell the property later, they will each get the same investment back as they put in.
Who is a Deed of Trust for?
A Deed of Trust is typically taken out by couples, but it can also be used by family members or friends who are buying property together.
You’re less likely to need a Deed of Trust if you are buying your property 50/50 with your partner, as the final sale value of the property would just be split evenly again after any legal costs have been taken out.
But when you have both put in different amounts of money into an investment, a Deed of Trust ensures each party gets their fair share back. This can prove incredibly useful in the unfortunate event of a messy breakup or dispute.
If Sam and Paul buy a house together for £250,000 and Sam has put in 60 percent of the deposit, whereas Paul has only contributed 40 percent, a Deed of Trust will ensure that if they come to sell the property, Sam will get back 60 percent and Paul will get 40 percent.
If there was no Deed of Trust in place, the couple could enter a dispute over who owns what share of the property, and there would be nothing to legally stop Paul claiming 50 percent instead of his 40 percent as the property is owned jointly.
In addition, if Paul contributed more towards the monthly mortgage payments than Sam did and also paid to have the house decorated, this can be recorded on the Deed of Trust, too, and the resulting amount will be divided to reflect these extra payments.
This is called a Commensurate Share type deed and is just one of many options available.
When is a Deed of Trust used?
The most common use for a Deed of Trust is to keep a legal record of the different contributions made towards a property, but it can be used for a number of other purposes. These include recording:
- How much each party has paid towards the property
- What each person’s share in the property is
- If one person has put extra money in at a later date, for example in renovations
- How much each person is responsible for in outgoings such as mortgage payments, bills and maintenance
- If a third party, such as a relative, has invested money and is not listed on the title deed but still wants to protect their contribution
- If one party is unable or unwilling to buy the other out and wants to officially surrender their interest in the property
How does a Deed of Trust work?
Since Deeds of Trust are so flexible, you will first need to sit down with your conveyancing solicitor and discuss what you want your agreement to cover.
Your solicitor will then draft a contract and you will both sign it. If you want the changes to be recorded on your title deed, your property lawyer will organise this with the Land Registry afterwards. This will ensure the property cannot be sold without both parties’ consent.
Can I create a Deed of Trust myself?
We recommend you hire a conveyancing solicitor to create your Deed of Trust, as this way it is legally binding. When you create your own Deed of Trust, writing it out yourself and getting someone else to sign as a witness, you might find it includes mistakes or is not recognised in a court of law.
The small expense of getting an official Deed of Trust from a solicitor is nothing when compared with the huge investment of a property, and it is well worth getting it done properly to protect such a large asset in the future.
Why you need a Deed of Trust
A Deed of Trust is a bit like a prenuptial agreement – it keeps the assets of one or both partners safe in the case of a break-up or dispute. While it’s often assumed that prenuptial agreements are more for millionaires and celebrities, a Deed of Trust is a valuable tool for a variety of types of people. When you buy a property, there is a huge amount of money at stake, and with everyone’s situation being different, it pays to have a contract drawn up that not only protects each person’s investment but alleviates the risk of disputes should the relationship come to an end.
In addition to the protection given by a Deed of Trust, your solicitor will be able to advise you as to the tax and planning implications that come with buying property jointly. They may also suggest you create a will to ensure that your assets are safe and will go to whomever you choose.
Who should you get your Deed of Trust from?
Why us, of course! All solicitors on the Homeward Legal nationwide panel are CQS (Conveyancing Quality Scheme) accredited (awarded by the Law Society) and SRA regulated, so you know you’re in safe hands.
We can provide tailored Deeds of Trust that will be legally binding in a court of law, and while the Deed of Trust is a one-off payment, our friendly and professional team are on hand to deal with any of your enquiries later on down the line.
If you would like to discuss a Deed of Trust further, call Homeward Legal on 0800 038 6699.