Deed of trust: the pros and cons

What is a deed of trust?

This is an agreement that a borrower can execute in order to secure performance and is usually set out in agreement with the lender. Also known as a Declaration of Trust in the UK, a lender gives money to a borrower to purchase a home and in exchange, the lender receives a promissory note guaranteeing that the borrower will repay the loan amount. It sets out clear and specific ownerships of the property and protects the interests of both parties.

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Why should I get one?

Most commonly, such a deed is used when you are buying a property with someone else, it’s akin to a pre nuptual agreement in the sense that it keeps the assets of one or both partners safe, should there be a break-up, dispute or similar. You will either be joint tenants or tenants in common with the other owner and it depends on your circumstances as to which is most appropriate. “Joint tenants” means that if one party dies, the other will inherit the property. If you want the property to go to another person, or if you are contributing different sums of money, you can choose to be tenants in common and have a Trust Deed written up to protect each party’s individual interests.

According to there will always be three parties to this agreement: the beneficiary (the lender), the trustor (the borrower) and the third party trustee who holds the legal title.

The Pros

–         It can be customised according to your individual circumstances. Your declaration of Trust solicitor will ensure it covers a variety of future situations such as when buying as a partnership, one party wants to sell off some or all of the property.

–         Commonly, a couple will share the costs of a new home and it may be desirable to ensure legal protection is in place in case of a relationship breakdown.

–         Likewise, buying with a family member may mean you want extra protection in case of a conflict.

–         Upon death, a property held in trust will avoid the probate process.

–         In the case of bankruptcy or similar, the property held in trust will be protected from other creditors.

The Cons

–         Any debt recovery actions in progress can’t be stopped by a Trust Deed.

–         It will show up on your credit file and restrict your ability to obtain further credit.

–         If you fail to maintain the payments according to the terms of the trust deed, you can be made bankrupt which affects how much credit you can get and your ability to be a director of a Limited Company.

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Do I need to use a solicitor to write up the Trust Deed?

While you can technically write up your own Trust Deed and use someone else as a witness, it is not usually advisable. It may not be legally binding if there are errors, and considering a property purchase is one of, if not the, most expensive transactions you will ever enter into, it’s worth making sure you have adequate legal protection in place. If you are considering whether or not you need a Trust Deed, it is worth consulting a specialist such as Sam Conveyancing who can advise further in light of your circumstances.

What do I need to do next?

It’s important to consider registering your Deed with HM Land Registry, this will help to enforce your rights should any dispute end up in court later down the line. Alternatively, the arrangement can be kept private and unregistered if preferred.

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