A deed of trust, also known as a declaration of trust, specifies how joint owners will hold interests in a property.
It is commonly used by tenants in common who have purchased a home together but have made different contributions to the purchase price.
Legally binding
A deed of trust is a legally binding financial arrangement between two or more people who either jointly own a property or live together. It clearly records each party’s initial contribution to the purchase, such as deposit amount and percentage, and goes on to detail how the financial arrangements will be managed between the parties in the long term, such as who contributes what percentage to the monthly mortgage payments and bills. A deed of trust can also include details of a family member’s contribution towards a deposit to ensure their investment is protected.
By accounting for and recording these details, there is a true record of ownership and absolute clarity of what will happen should there be a sale or one person wishes to buy the other out. It safeguards each person’s contributions by ensuring there is no confusion, dispute, or ambiguity in the event of a separation, death, divorce, or other relationship breakdown.
If one person makes a significant investment after the property has been purchased, such as paying for an extension or renovations, the deed can be updated and the share of the property amended.
Solicitors
To be legally binding, a deed of trust should always be drafted by a legal professional. This can often be done under a fixed fee agreement; alternatively, you can request quotes from different providers. Instructing a solicitor also ensures you are fully informed about the consequences of signing a legally binding deed of trust and advised as to what the terms of the document mean for you.
A deed of trust is usually completed alongside the purchase of a property. Although it can be drafted at any point after the purchase, it is highly recommended that all party’s interests are protected from the outset.
Drafting a deed of trust and keeping it current
A deed of trust sets out the percentage of the property each person owns, who is responsible for which costs and what each party stands to receive if there is a separation, a dispute or a sale. It can reflect one person putting in a larger share of the deposit or paying more towards the monthly mortgage. It can also protect a third party who helped with the purchase, such as a family member who provided part of the deposit.
To be valid and legally binding, the deed should be drafted by a legal professional, who will usually send you a draft to read before you sign. Instructing a solicitor also means you receive proper legal advice before committing. A basic deed can often be drafted under a fixed fee agreement, so the cost is clear from the start.
Circumstances change, so it is sensible to review the deed and consider rewriting it whenever something significant shifts, so that it still reflects the real position.
Why co-buyers and lenders value a deed of trust
Few buyers put a deed of trust in place. According to the Homeowners Alliance, only 15% of people arrange one before buying, yet 27% of co-buyers felt they lost out when sale proceeds were split unfairly. A deed records each person’s contribution accurately, so that problem does not arise.
It can also deal with specific situations, for example by stating that part of the deposit which came from an inheritance or a gift must be repaid before the rest of the proceeds are divided. Mortgage lenders tend to view deeds of trust positively, because they give clarity about repayments when two or more people buy together.
For unmarried couples, a deed works in a similar way to a prenuptial agreement, setting out each person’s rights and contributions. It also suits friends and family members buying together to get on the property ladder. Telling your solicitor before the purchase begins means the deed can be drafted alongside it, avoiding extra fees and the stress of arguing over the split later.
