Declaration of Trust

BargainBills

Hi All,

I'm trying to find the fairest way of drafting a declaration of trust for me and my OH for a house buy. We hope never to have to refer to it, but it will offer piece of mind since we will both be investing a different sum towards the deposit and contributing varying amounts via over-payments during the course of the mortgage as each of our finances allow. There will rarely be a 50/50 split in the equity we've both invested over the course of the mortgage.

I came across another poster who seemed to have a sensible approach. How does this sound:

In the event of seperation/sale of the property, amounts paid by each party (initial capital & contributions to the mortgage) are to be added together and returned to the respective investor. Any increases in the value of the property beyond initial purchase price will be split 50/50.

Do you think a declaration of this type/reasoning would be accepted legally? We will be going via a solicitor but wanted to get thoughts here first.

Many thanks.

getmore4less

BargainBills wrote: »

Hi All,

I'm trying to find the fairest way of drafting a declaration of trust for me and my OH for a house buy. We hope never to have to refer to it, but it will offer piece of mind since we will both be investing a different sum towards the deposit and contributing varying amounts via over-payments during the course of the mortgage as each of our finances allow. There will rarely be a 50/50 split in the equity we've both invested over the course of the mortgage.

I came across another poster who seemed to have a sensible approach. How does this sound:

In the event of seperation/sale of the property, amounts paid by each party (initial capital & contributions to the mortgage) are to be added together and returned to the respective investor. Any increases in the value of the property beyond initial purchase price will be split 50/50.

Do you think a declaration of this type/reasoning would be accepted legally? We will be going via a solicitor but wanted to get thoughts here first.

Many thanks.

That is wrong and will fail most tests of sensible and fairness price rises and drops.

Much fairer to decide how much of the property you each want to own. and keep that fixed, each contributing that % to any repairs improvements

Split the debt accordingly taking into account the puchase cost/deposits

Then each service their debt seperately(this takes account of any mismatch in overpayments)

if you sell you get your shares of the property back and pay off whats left of your debt.

Easy to record and does not require any valuations throughout the ownership period.

edit: fix the mess above too much of a hurry to go out and add below
The key stuff thow in a trust deep is not how you split but tghe reasons that can cause it to happen and other things like death, kids, can't pay won't pay

TBagpuss

YEs, you can have a declaration of trust in the sort of terms you propose. It does have some inherent unfairness so you would need to be particualrly careful that you both get separate advice so you each understnad that if (say) One person contributes £100K and the other £25K, and the house then goes up in value, the person who contributed £25K would get a much higher return on their investment (imagine value goes up by £30K. That £30K is split equally so Person A, who paid in £100K, gets £115K back (return of 15%) Person B who contributed £25K gets £40K back, (a 60% return)


It would be possible to agree that he initial contributions would give you a % share in the property and that subsequent contributions would be repaid at face value, (it is much harder to treat later contributions as % as that requires you to know the value of the property each time a contribution is made)

You could also chose to build in provision for the agreement to be reviewed and updated at regular intervals, or in the event that one of you made a contribution over a certain value.

You can agree whatever terms you want, but you need to make sure that (i) Both of you are very clear on what the effect will be (looking at the numbers with different assumptions can be quite useful, to illustrate potential outcomes) (ii) both of you get separate and independent advice so that neither of you can later claim you did not understand (iii) Keep good records so there is no dispute, later, about who paid what (iv) review the agreement periodically and in particular in the event of any major changes in circumstances, such as if you get married, have childnre, or if either of you loses your job or becomes unable to work.

getmore4less

TBagpuss wrote: »

YEs, you can have a declaration of trust in the sort of terms you propose. It does have some inherent unfairness so you would need to be particualrly careful that you both get separate advice so you each understnad that if (say) One person contributes £100K and the other £25K, and the house then goes up in value, the person who contributed £25K would get a much higher return on their investment (imagine value goes up by £30K. That £30K is split equally so Person A, who paid in £100K, gets £115K back (return of 15%) Person B who contributed £25K gets £40K back, (a 60% return)


It would be possible to agree that he initial contributions would give you a % share in the property and that subsequent contributions would be repaid at face value, (it is much harder to treat later contributions as % as that requires you to know the value of the property each time a contribution is made)

that is why you separate the debt from the equity on paper to avoid the need to revalue

You could also chose to build in provision for the agreement to be reviewed and updated at regular intervals, or in the event that one of you made a contribution over a certain value.

You can agree whatever terms you want, but you need to make sure that (i) Both of you are very clear on what the effect will be (looking at the numbers with different assumptions can be quite useful, to illustrate potential outcomes) (ii) both of you get separate and independent advice so that neither of you can later claim you did not understand (iii) Keep good records so there is no dispute, later, about who paid what (iv) review the agreement periodically and in particular in the event of any major changes in circumstances, such as if you get married, have childnre, or if either of you loses your job or becomes unable to work.

The easy way to understand the separation of debt from equity is to look at the debt as if it came from two places, say parents, and you bought for cash and not frm a mortgage.

xsjdx

I've had a similar situation.

Happily, it looks like we've found something to suit us both! I've had to realise that I'll never recoup my 'half' (of the large deposit I'm paying)from my partner as cash, and if he put it into the house (via annual overpayments), he's still putting in half of what I did!

So - Tenants in Common it is. BUT - I think we're going to get something a little more flexible than straight-up shares - a Commensurate Share deed.

I have a link, but as a new user, I'm not allowed to post it! So check out deedoftrust(dotcocotuk)/index.php/scenarios

As I understand it, you get a 'formula' on your paperwork - and the amounts you both put in are used to work out the share, at the point of sale. You can add unequal monthly payments, unequal building work (we're keeping those equal ourselves), overpayments by either partner etc. Also taking into account purchase costs and deposit.

Might be worth chekcing out...

getmore4less

there are flaws in the Commensurate Share deed

see
https://forums.moneysavingexpert.com/discussion/5258218

goodwithsaving

We decided not to look at our house as an investment, but as somewhere we were going to live. Each gets out what they put in as a deposit and the rest is split 50/50.
The lower earner had a substantial deposit (gift), the higher earner had lower deposit. Equally, the higher earner had responsibility of having money on stand-by for maintenance, security of earnings etc. and meant the amount required could be borrowed via a mortgage. The higher earner also manages the finances, overpays the mortgage every now and then and pays the bulk of doing the house up.

Swings and roundabouts.