A deed of trust is a document that a borrower executes to secure performance. It is usually under an agreement with another person (the lender). And the lender agrees to advance money to purchase or improve real property. What is a deed of trust? What purpose does it serve, the benefits and drawbacks of having one, and how do you get one? These are just some of the questions that we will answer in this blog post. So, without any further ado, let’s begin with the basics.
What is a deed of trust?
A Deed of Trust is a legal document that protects the interests of both parties. While purchasing the property, It ensures you will not lose your money if you no longer have access to it e.g., through bankruptcy, death. A Deed of Trust can also protect buyers from any future sale or foreclosure escrows. It ensures they are entitled to receive what’s owed them before others who had nothing invested in this transaction get anything at all!
To help you better understand, in simple words. A Deed of Trust in the UK is also known as a Declaration of Trust. It is an essential legal document that sets out clear and specific divisions to ownership for the property. The trustees can then reassure tenants if one person wants their share bought back. Or when they want certain rights with regards to selling the home. The tenants in common can use it because they have paid different amounts into buying this type of property at its outset. It usually means both parties will know what will happen to the property. If you should sell it off when someone decides they wish to part ways during negotiations.
A deed helps protect the landlord’s investments. While ensuring that each tenant knows where they stand financially. Hence, there’s no confusion about any eventuality. Like whether one partner wishes to sell up.
A deed of trust is an essential financial tool that many people do not know about until they experience it. They normally get to know about it firsthand during their home purchase process. And most importantly. Never underestimate how disastrous having one could potentially save you. Buying a house can be stressful enough as it is, but when you’re buying with someone else, the stakes are even higher. Trusting that your partner won’t leave ever. Or abscond with money isn’t always easy to do. Especially if they want to buy without Deed of Trust protection in place. That’s why we’ve created this handy guide for all homebuyers. So, if you need some extra guidance on what a deed of trust does before making your final decision!
Why should I get one?
To decide which form of ownership is suitable for you. You must consider the following factors. How much time do I expect to be living in the property? How often will I need access and control over my investment now or at a later date? What might happen if we disagree about something related to this purchase? Will one person become more important than another? Just because they have greater rights under the law?
When purchasing real estate with someone else. Both parties must understand their respective roles. If you choose to opt for joint tenants in which you both own the property equally. Then each party has an equal share in all benefits. And burdens associated with owning property together? Tenants-in-common (Each owns a specific percentage in the property) also hold unequal shares. But only when dealing with assets purchased jointly, such as stocks or cars. Traditionally, when you are buying the property with someone else, it’s a Joint Tenancy.
If one of the joint tenants dies. The surviving tenant inherits his partners share outright. That ownership may not be what they wanted for themselves. Or whoever inherits them. If there are different contributions on who pays what towards the down payment. To avoid this problem altogether. And to have more control over how you should deal with shared properties. In case of sudden death or even when something unpredictable happens between the partners. A Deed of Trust would allow us to go into details about each individual’s contribution. It can solve any potential problems before anything happens. So we mustn’t complicate matters later because good deeds will always save us our time and energy.
The Benefits
The significant benefit of getting a deed of trust is that you can get it written according to your circumstances. As such, you’ll need to sit down with your Declaration of Trust solicitor. And discuss what would best cover the specifics in this situation. Even before drafting an appropriate contract for both parties’ signatures. You can then record the signed document on one’s title deed at their property lawyer’s direction not to allow it to change hands. Without each party being aware first.
Another main benefit will be that it also offers protection for both partners. In case if their relationship fails. As it keeps an individual’s assets safe from creditors. A Deed of Trust contract will cover everything! From how much one person can borrow against the property. Especially what happens when someone wants to sell off parts of said properties? Or business dealings with other individuals they may be involved with post-breakup. So having such documentation drawn up by a conveyancing solicitor not only protects your investment. But alleviates any worries about disputes should you break up down the road.
Additionally, it’s pretty common for couples to share the costs of a new home. While ensuring that you have legal protection in place is essential. It may be worth considering what will happen with your assets after death. And whether or not they need protection from taxes if passed on as part of an inheritance. Your solicitor should also advise you about planning considerations. Such as building extensions etc, which are often requirements when buying property jointly.
The Drawbacks
Many people think that Trust Deeds are a good idea. As they provide relief from liabilities after four years typically. Still, there are some disadvantages to be aware of before going ahead. We will now talk about those below.
- The banking sector is becoming stricter than ever. It is even requiring people to release equity in their property. This means that if you can’t remortgage your home. It could mean selling the place where you live and settling somewhere else for a while.
- Any diligence (debt enforcement) that has already commenced to recover the debts will not be stopped by a Trust Deed.
- Entering a Trust Deed will negatively affect your credit rating. Agreeing with the bank means you’ll have to agree to specific financial responsibilities. And this can result in negative repercussions. For those who don’t meet their obligations.
- You can’t get another loan until you pay off your debt. You owe more than £250, but if you want to borrow even more money before settling that bill. The lender wants a personal guarantee from someone with good credit who has enough income for them both to live on comfortably. Because they won’t give it back without some help.
- You might think you’re financially savvy. But your lack of awareness could lead to some severe problems. If you fail to maintain the payments according to the terms and conditions stated in a trust deed. Then it’s likely that bankruptcy will be on its way.
When Should I Get a Deed of Trust?
Yet again a Deed of Trust is a legal document that safeguards the rights and interests in the property. Especially when two or more people are buying it together. You can also use it with family members, friends, or even couples. If you want to ensure that both the partners get their fair share after investing different amounts into an investment, this legally binding contract makes sure each party gets what’s owed to them. If there should ever be any break-ups between partners during this process. Also, it provides protection against disputes arising down the line. If you may not have been anticipated them at the initial purchase time.
The trust deed is a legal document that changes who gets the property. It’s important to register it with a land registry. It helps to enforce your rights in court should anything happen.
An Example
If Natasha and Paul buy a house together for £250,000. And they split the downpayment 60/40 between them, Natasha puts in more than what Paul did. This means that when they come to sell their home. There will be no dispute if they signed a deed of trust. And Natasha will naturally get more than Paul. Without any dispute or confusion. If they hadn’t signed a deed of trust then Paul could have asked for an equal share. To avoid such situations, you sign these deeds to avoid disputes in future.
Luckily, one other option, known as a Commensurate Share deed. You can create these if Paul plans to contribute more to monthly mortgage payments than Natasha does. Or pays to have the house decorated. Both spouses want these extra contributions reflected in their division of assets. If you want to create this type of agreement. There must be an equal amount that they can agree on. And details for maintenance before the courts will finalize it.
Who can help me with a Deed of Trust process? Real Estate Agents or Lawyers?
When you hire a solicitor to draw up your Deed of Trust. It gives you peace of mind knowing that you can protect your investment. You might make mistakes or not have the property recognized in court by drawing it yourself. We recommend hiring a conveyancing lawyer if this sounds like something for you!
When one hires an experienced and qualified attorney. Such as those at Manak Solicitors or SAM Conveyancing. They will be able to offer invaluable guidance on how best to protect your assets. Especially from any potential future legal disputes over inheritance rights. Regarding who has ownership access when someone dies. Without leaving behind written instructions outlining what should happen with their estate. It can often lead families into financial ruin due to the lack of funding options available.
Terminating the Deed of Trust
How can you dissolve a trust? It will depend on the type of trust that is in question. Some trusts end upon an occurrence. Such as death or coming-of-age. Others terminate by the action of trustees and beneficiaries. Either way, it is finished, though. You should always keep the records updated. Through written resolution or formal deed depending on the terms outlined in the settlement agreement.
You should notify The HMRC if the trust is closing. If this happens, they will remove it from their system to avoid any future problems. Or clear the costs that might arise in the meantime. Failure to notify them may result in penalties like late tax filings. And other more severe issues for either trustee who failed to do so beforehand. Or those who don’t know that there are still assets left over. After the closure of an estate plan, such as one with a living trust.
Trustees need to make sure that all the beneficiaries are given their share of the property. If they fail in this, then there is a possibility lawyers can sue them for breaching trust. And damages could be awarded against them as well. When it comes to distributing trusts. A trustee must first check if anything has changed. Regarding who should get what before any distributions take place. This way, they’ll know how many people need something from the estate’s assets. Or at least confirm which ones don’t exist anymore!
Conclusion
It’s essential to understand the basics of a deed of trust before you sign one. The details will vary depending on your situation. But it is imperative that you learn about the different types. And benefits or drawbacks of legal counsel before making any decisions. We’ve discussed some key points in this blog post. If you need more information regarding the deed of trust. Or property management, feel free to contact Oasis Living. We will be happy to assist you!
