Declaration of trust advice

Fred.Hedgehog

Hi

I'm not sure this is correct forum, but the situation has arisen due to MiL passing away, so hope it's ok to post.

Her will was to leave everything to her 2 children, but SiL informed us on day MiL died :undecided that the house had been been put into SiL name secretly previous year and a small mortgage secured by SiL to clear some secret MiL debt.

We've reached agreement with SiL that house will be sold in few years when her son is adult, and equity split on a % share basis, that way what was agreed in secret between MiL and SiL is left intact, so SiL will have higher % as she owns a bigger stake so is pro-rata'd.

We need to get this tied up legally, and believe a declaration of trust is the right way to do so, so my questions are (please )
1. What points do we need to consider to be drawn up? We want to approach solicitor with a comprehensive plan so legal time (bill) is minimal.
2. Are there online solicitors that can do this, and can anyone recommend one? We are a bit awkward to arrange a high street solicitor appointment for in terms of other commitments.

Thanks :)

g6jns_2

It is not going to be straightforward. The solicitors have strict rules that mean that each party has to get independent legal advice. Have you checked the Land Registry entry to confirm the ownership? The whole thing sounds suspicious.

Fred.Hedgehog

Oh no... We were hoping, as its amicable (now!) to do it simply.
The house is defo signed over to SiL.
The whole thing is very unpleasant, and upsetting for my husband, my MiL was terminal but never told him before passing

Savvy_Sue

g6jns wrote: »

It is not going to be straightforward. The solicitors have strict rules that mean that each party has to get independent legal advice. Have you checked the Land Registry entry to confirm the ownership? The whole thing sounds suspicious.

Although it could be straightforward enough - both siblings need to get separate legal advice, but at the end of the day, if they are in agreement, then they sign and the job is done. One solicitor may say "this effectively reduces your rights" but that may be acceptable.

Where it gets complicated IMO is if there is still a mortgage on the property, as the lender may not want to agree to any restrictions on ownership.

However I don't think this can easily be handled online: maybe I'm old-fashioned but there's something about a face to face interview which IMO helps get the facts, the full facts, properly on the table.

getmore4less

Assume you have been through the potential IHT issues this will have caused if over the nil rate band.

There may be other options other than this promise of a gift.
How big is the mortgage and house value.
How are you working out the % and how big is the gift going to be.

What points do we need to consider

lets have a look at the actual question,
plenty to think about before you go to get anything legal in place.

Part of the issue will be potential future CGT as you are in effect getting a gift of part of the house, that beneficial interest will not benefit from PRR if you don't live there.

You also have to consider the other exit option, divorce/marriage of SIL, death of any party including the son which is the current sale trigger, you may want to look at other triggers.
Son becomes a vulnerable adult are you going to kick them out.

I would check the house is in the sole name of SIL, it may be she is not in a position to gift you the share you think you are getting.

You also have to be very careful of how you describe "equity".

A Second charge on the property may be worth considering to stop the property disappearing(lender may not like that).

You also need to prevent further lending against the property.

You need to set out maintenance responsibility.

What's to stop them moving out and renting out the place

...

There will be more and given the mess many solicitors make over trust deeds for the much simpler situation of cohabiting couple where both have interests in the property and the mortgage I would not hold out much hope for finding a cheap one that can get this right..

One key issue will be enforcing any agreement.
......................................
Reading between the lines the SIL was already living in the house.
It is not clear why this solution was chosen to resolve the "small debts"
It did put the SIL in very strong position to remain in the property where as prior to this the situation would be very different.

The I will move out in X years, some people do have a habit of changing their mind.

Fred.Hedgehog

Thanks all.... I realise now I've been rather naive with my thought process and it is very complex I didn't even know the lenders would be concerned or aware of what we are planning! We have thought of deaths / marriages / further finance but (again!) assumed you could get a solicitor to draw up anything you ask! Oops...

I know MiL and SiL saw a solicitor to get it transferred, it was before she was diagnosed terminal, and it was secret as she didn't want husband knowing debts. Ive seen land registry entry and it is just SiL, and mortgage is approx half of property value. We would consider equity as difference between mortgage and house value on day she passed, then that would be split 50/50 for a starting point, and future calculations done on SiL owning mortgaged amount plus the sum above, and us just the sum above, with proportionate growth.

It's just so frustrating and distressing this was done, knowing her kids were going to deal with the aftermath and it could've been pre-empted.

Thanks for help

paddy's_mum

Fred.Hedgehog wrote: »

it was secret as she didn't want husband knowing debts

Where does the husband feature in all this?

getmore4less

Whats the value of the estate as is the MIL was living in the place the house remains part of the estate and if not done properly the debts may no longer be deductable.

When you said small debts I was thinking you really meant small not 1/2 the house value.
(that throws out some alternative ideas)

Was it mortgaged before?
How much were the debts?
Was there extra money released from the equity when mortgaged?

You need to see evidence of this to establish an equitable share if the agreement is to put you in a position as if this transfer had not happened.

Also Surprised the lender was happy with the previous owner still living there that is one of the issues that comes up a lot on the mortgage board.

TBagpuss

It would be possible to draw up a Declaration of Trust - the declaration of trust itself should not in itself be a problem for the mortgage lender.

Is there a reason why SIL doesn't want the house sold until her child is older? Is she living in the house? If not, then it may make more sense to sell the property now and repay the mortgage any any money due to SIL, and then split the balance.

I would strongly recommend seeing a local solicitor, not trying to get it done online.
In drawing up a declaration of Trust it is sensible to include:

• what percentage share of the property each beneficiary will own and how this is calculated (e.g. as a % of the gross or of the net equity)
• Who will be responsible for the mortgage payments and how the mortgage will be paid off on sale (e.g. before splitting, or after splitting, which will in tun depend on how you calculate the shares and the responsibility for the payments)
• how any mortgage arrears or charges will be paid (i.e. will they come out of the share of the person responsible for paying the mortgage, or will they be paid out of the gross with the rest of the mortgage)
• Who will be responsible for the costs of maintaining and insuring the property (often this is split in the same % as your interests in the house, but if SIL is living there it may be reasonable for her to meet day-to-day costs)
• when/in what circumstances the property will be sold and how any disagreement over value, timing etc would be resolved

You would need the mortgage company's consent to put the property into your joint names, but it may be possible to register a second charge over it in your husband's favour.

On the plus side, it sounds as though your sister is doing what she knew her mum wanted, rather than simply keeping the whole property herself, which legally she probably do, in the absence of any formal arrangements with her mother to hold the property on trust for herself and her brother. But it is sensible to get it sorted formally now to protect everyone in case of any future divorces, debt or fallings out

getmore4less

Fred.Hedgehog wrote: »

We would consider equity as difference between mortgage and house value on day she passed, then that would be split 50/50 for a starting point, and future calculations done on SiL owning mortgaged amount plus the sum above, and us just the sum above, with proportionate growth.

If the intention is to put you a position as if the transfer never happed then this is potentialy wrong.

If SIL was paying the mortgage they should get to keep the equity so the equity split is done at date of transfer not date of death as some of the mortgage will have been paid.

troubleinparadise

paddy's_mum wrote: »

Where does the husband feature in all this?

I took this as meaning OP's husband (SIL's brother), not MIL's....