When purchasing a house with another person, you may want to consider creating a Deed of Trust to clarify who owns which proportions of the house.
In this blog, we’ll explore what Deeds of Trusts are and how they work, enabling you to make an informed decision about whether you need one.
What is a Deed of Trust in real estate?
A Deed of Trust states how the ownership of a property is divided up. Deeds of Trust are typically used by ‘tenants in common’ (those who have bought a property together but contributed different amounts).
The document will clearly state the exact percentage of the property each party owns.
Why you may need a Deed of Trust
When a property is bought, there are two ways the ownership of that property can be structured - as joint tenants or tenants in common. Joint tenants own the property equally, meaning a joint mortgage must be taken out. This also means that if one person dies, the property will automatically be passed on to the other property owner.
If you opt to be tenants in common, you will not have equal shares in the property and can therefore pass your shares to whomever you nominate in your Will. Tenants in common require a Deed of Trust, as this will state the exact shares each person who bought the property have.
Property purchase example
You and your partner are purchasing a £200,000 property and are putting down a 10% deposit. The rest of the property is paid for through a joint mortgage. However, you are contributing £15,000 and your partner is contributing £5,000. A Deed of Trust will be created to state that you have paid for 75% of the deposit and your partner has contributed 25% of it. This ensures that both parties get the right amount of money when the house is sold. The Deed of Trust can also record that one person may be making larger mortgage contributions than the other.
What is listed in a Deed of Trust?
Deeds of Trusts tend to include:
- How much each owner has paid toward the property.
- The shares of each of the owners.
- The prices paid for renovations and who paid for them. This could affect the shares each owner has in the property.
- How much each owner is contributing to ongoing costs of the property. This could include the mortgage and bills.
- Third parties that have contributed toward the purchase of the property but were not included in the title deeds. This is usually the owner’s parents.
- What happens when the property is sold or one of the owners wants to sell their shares.
What money can a Deed of Trust protect?
Deeds of Trust can protect various financial contributions, such as:
- The deposit: The amount each owner of the property and any additional third parties contributed toward the deposit can be recorded in a Deed of Trust.
- Mortgage repayments: This is usually detailed if the owners of the property are contributing differing amounts to pay the mortgage each month.
- Renovations: How renovations will be repaid and whether it will change the shares of the property will be detailed.
- Household bills: The amount each owner will be contributing toward household bills will be included.
How to get a Deed of Trust
It’s highly recommended to work with a solicitor when creating a Deed of Trust to ensure they are legally binding. While you can write your own one, this doesn’t tend to be legally binding, meaning if you and the person you bought the property with split up or have a disagreement, they do not have to abide by the information outlined in the Deed of Trust you wrote up.
At Wright Hassall, we’re here to help. Contact us today for further support and advice.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
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