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    • economic
    • By economic 11th Jan 18, 2:16 PM
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    economic
    Friend buying house with finance - declaration of trust
    • #1
    • 11th Jan 18, 2:16 PM
    Friend buying house with finance - declaration of trust 11th Jan 18 at 2:16 PM
    Hi

    My friend is buying a house with his fiance. He has agreed with his finance that since he is putting a lot more into the property (some of which has been gifted by his parents) that he needs some form of security if the worse were to happen (death of my friend or divorce) so that:

    - on death: some of the money my friend put into the house would go back to his parents and the rest would form part of his estate.

    - on divorce: money my friend contributed to the house purchase would be given back to him and not for example split 50-50 between the couple.

    Is a declaration of trust all that is needed to achieve the above? Can he have it stated in the declaration that he has to get back his share of contribution on divorce? would it be initial deposit or the house equity? Also what happens to the ongoing payments for the house like mortgage (which would be paid from a joint account)? Should my friend pay his proportion of equity for ongoing payments (as it will be unfair on his fiance if ongoing payments were split 50-50)?

    What about on death? what happens if he dies, is a trust enough or does a Will need to be drawn up too? Does one override the other for the property?

    Also should the house be owned as joint tenancy or tenants in common? What is best given his situation and can it be changed later without any stamp duty or other costs (except of course legal)?

    All this is for the short term until they have settled down and have a baby at which point things would obviously change. Its just security for my friend and his parents really.

    thanks
    Last edited by economic; 11-01-2018 at 2:18 PM.
Page 1
    • Tom99
    • By Tom99 11th Jan 18, 4:16 PM
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    Tom99
    • #2
    • 11th Jan 18, 4:16 PM
    • #2
    • 11th Jan 18, 4:16 PM
    You need to hold the property as tenants in common plus a Deed of Trust. Work out how much %age of the total price you are paying up front. Lets say the total is £300k and you are putting in £100k so 33.33%.

    Assuming the mortgage is split 50/50 but partner A has put in all of the £100k deposit, the deed will say something like this but there are various ways of expressing the same thing:-

    NOW THIS DEED WITNESSES as follows:
    The parties hereto declare that they hold the Property on a trust of land to the parties herewith DELCARE that they hold the property and the proceeds of sale (after discharging the mortgage and deducting there-from the costs of sale) and the net rents and profits until sale UPON TRUST for themselves as Tenants in Common
    (a) as to 33.33% of the gross sale price of the Property less costs and fees for
    Partner A absolutely together with half of the remainder and
    (b) as to half of the remainder as above for Partner B absolutely

    That way, on a sale, you will get back 33.33% which is what you deposit bought and everything else is shared 50/50.

    You can't register the deeds of trust as such with the Land Reg Title but their existence can be protected on the register by way of a restriction.

    Your interest in the property will automatically form part of your estate if you die and your Will dictates who you leave it to. I don't think it is possible to specify what happens on divorce because that will be by agreement with ex or by the Court if you cannot agree.
    Last edited by Tom99; 11-01-2018 at 4:47 PM.
    • Red-Squirrel
    • By Red-Squirrel 11th Jan 18, 7:10 PM
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    Red-Squirrel
    • #3
    • 11th Jan 18, 7:10 PM
    • #3
    • 11th Jan 18, 7:10 PM
    If he wants to decide what happens after he dies, he needs to write a will, as well as having the declaration of trust stating who owns what.

    He should consider whether he wants to allow his bereaved partner to continue to live in the house for as long as she wants to or if he wants his parents to be able to force a sale to get their money.

    Any changes such as marriage or children, and the wills need to be updated.
    • economic
    • By economic 12th Jan 18, 1:48 AM
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    economic
    • #4
    • 12th Jan 18, 1:48 AM
    • #4
    • 12th Jan 18, 1:48 AM
    You need to hold the property as tenants in common plus a Deed of Trust. Work out how much %age of the total price you are paying up front. Lets say the total is £300k and you are putting in £100k so 33.33%.

    Assuming the mortgage is split 50/50 but partner A has put in all of the £100k deposit, the deed will say something like this but there are various ways of expressing the same thing:-

    NOW THIS DEED WITNESSES as follows:
    The parties hereto declare that they hold the Property on a trust of land to the parties herewith DELCARE that they hold the property and the proceeds of sale (after discharging the mortgage and deducting there-from the costs of sale) and the net rents and profits until sale UPON TRUST for themselves as Tenants in Common
    (a) as to 33.33% of the gross sale price of the Property less costs and fees for
    Partner A absolutely together with half of the remainder and
    (b) as to half of the remainder as above for Partner B absolutely

    That way, on a sale, you will get back 33.33% which is what you deposit bought and everything else is shared 50/50.

    You can't register the deeds of trust as such with the Land Reg Title but their existence can be protected on the register by way of a restriction.

    Your interest in the property will automatically form part of your estate if you die and your Will dictates who you leave it to. I don't think it is possible to specify what happens on divorce because that will be by agreement with ex or by the Court if you cannot agree.
    Originally posted by Tom99
    Thanks. This is very helpful. Would the tenants in common share split be 50-50 or 33.3-66.6? I guess it’s 50-50?
    • Tom99
    • By Tom99 12th Jan 18, 2:41 AM
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    Tom99
    • #5
    • 12th Jan 18, 2:41 AM
    • #5
    • 12th Jan 18, 2:41 AM
    Thanks. This is very helpful. Would the tenants in common share split be 50-50 or 33.3-66.6? I guess itís 50-50?
    Originally posted by economic
    No its not that straight forward its the Deed of Trust which is setting out how proceeds will be split on sale.

    A simple 33.3%/66.6% split say would really only apply if there was no mortgage and the house was bought outright say A £100K and B £200k

    Where there is a mortgage things get more complicated.

    Using the above example where the mortgage is split 50/50, the mortgage is buying 66.66% of the property and partner A is buying 33.33%

    Therefore partner A is buying 33.33% + 66.66%/2 = 66.66%

    Partner B is buying only what is supported by their half of the mortgage, 66.66%/2 = 33.33%

    But it would be very wrong to say ownership is a straight A=66.66% and B=33.33%

    If the house had to be sold on Day 2 when it was still only worth £300k and the mortgage £200k there would be £100k left which should all go to A and nothing to B.

    10 years on and now the house is worth £600k and the mortgage reduced to £100k so there is £500k left after the sale.

    Using the formula I outlined above the split would be as follows:

    A: 33.33% x £600K = £200k plus (600-200-100)/2 = £150K TOTAL = £350K

    B: (600-200-100)/2 = £150K

    So you can see whilst on Day 2 partner B would get nothing by year 10 when the 50% of the mortgage they are supporting has had a 100% price increase and been partly paid off they will receive a good deal more.
    • TBagpuss
    • By TBagpuss 12th Jan 18, 10:50 AM
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    TBagpuss
    • #6
    • 12th Jan 18, 10:50 AM
    • #6
    • 12th Jan 18, 10:50 AM
    As they are engaged it would be sensible for them to get advice about a pre-nuptial agreement, as well as a declaration of trust.

    if a couple divorce, the court has to try to determine a fair settlement. the Judge would be entitled to take into account any declaration of trust but would not be bound by it, particularly if coeumstnaces change.

    While a pre-nup is also not binding on a judge, since it is specifically designed to address what should happen in the event of a divorce, and has more stringent requirements than a declaration of trust for things such as full financial disclosure and independent advice, it carries more weight. Ideally your friend and his fiance would then review and update the agreement periodically (e.g. every 5 years) so it is always up to date.

    They should also make wills (and bear in mind that unless the will expressly states that it is made in contemplation of marriage, it will automatically be revoked when they get married and they would have to make new wills at that point)
    • economic
    • By economic 12th Jan 18, 12:13 PM
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    economic
    • #7
    • 12th Jan 18, 12:13 PM
    • #7
    • 12th Jan 18, 12:13 PM
    thanks guys you have been very helpful.

    Apart from a Declaration of trust, Will and prenuptial, is there anything else my friend needs to consider or should consider given his position?
    • Tom99
    • By Tom99 12th Jan 18, 1:31 PM
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    Tom99
    • #8
    • 12th Jan 18, 1:31 PM
    • #8
    • 12th Jan 18, 1:31 PM
    Apart from a Declaration of trust, Will and prenuptial, is there anything else my friend needs to consider or should consider given his position?
    Originally posted by economic
    Wedding ring and a honeymoon might sweeten the pill after she has signed those documents.
    • Kevie192
    • By Kevie192 12th Jan 18, 4:32 PM
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    Kevie192
    • #9
    • 12th Jan 18, 4:32 PM
    • #9
    • 12th Jan 18, 4:32 PM
    Who said romance is dead, eh? *sighs*
    • davidmcn
    • By davidmcn 12th Jan 18, 4:39 PM
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    davidmcn
    He should decide whether he's buying with finance, a fiance, or a fiancee (I'm guessing the last one given the mention of babies but who knows).
    • Comms69
    • By Comms69 12th Jan 18, 4:40 PM
    • 1,776 Posts
    • 1,610 Thanks
    Comms69
    FGS they're getting married and he's pulling this nonsense.... why even bother getting engaged?!
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