Unequal house ownership, 2 divorcees, declaration of trust, children to inherit

benawhile

Hello

I am planning to purchase a house jointly with my partner.

I am enquiring about the use of a declaration of trust, or any other method, to apportion the ownership of a house we want to buy between myself and my partner, which will be initially unequal as I am retired with low income but have capital for a deposit of about half the value, and she has good income but currently no capital. We will need a mortgage for about half the value. Over time as we pay off the mortgage we expect that the proportion paid will change from mostly owned by me, to more equal shares.
We are looking for a house about £300,000 and 9 year mortgage. I am 66 and my partner is 51

When one of us dies, we assume that the other will stay in the house but of course this can't be guaranteed.
The main question is this:
All our children are grown up. If I die before my partner, how do I make sure that my share of the joint house is still available to split among my beneficiaries from the time my partner dies, and conversely if she dies before me, how can her stake in the house be ensured for her beneficiaries when I die?

For what it's worth, I also own outright the freehold house I am living in now, worth about £250,000, which I plan to rent out when we buy, and bequeath equally to my 3 children and my partner. If she dies before me, I could sell this and use part of the proceeds to “pay off” my partner's two children for her share of the joint house.
Also I have been quoted what seems a reasonable price for a mortgage protection policy in my name only and wonder if this would improve our situation, although the house I own is a kind of protection in itself.

Yorkshireman99

There are too many variables for a simple answer. You, and your partner, need separate legal advice from a solicitor who is a STEP member. It is emphatically not a job to try and DIY based on advice from here.

getmore4less

benawhile wrote: »

Hello

I am planning to purchase a house jointly with my partner.

I am enquiring about the use of a declaration of trust, or any other method, to apportion the ownership of a house we want to buy between myself and my partner, which will be initially unequal as I am retired with low income but have capital for a deposit of about half the value, and she has good income but currently no capital. We will need a mortgage for about half the value. Over time as we pay off the mortgage we expect that the proportion paid will change from mostly owned by me, to more equal shares.
We are looking for a house about £300,000 and 9 year mortgage. I am 66 and my partner is 51

When one of us dies, we assume that the other will stay in the house but of course this can't be guaranteed.
The main question is this:
All our children are grown up. If I die before my partner, how do I make sure that my share of the joint house is still available to split among my beneficiaries from the time my partner dies, and conversely if she dies before me, how can her stake in the house be ensured for her beneficiaries when I die?

For what it's worth, I also own outright the freehold house I am living in now, worth about £250,000, which I plan to rent out when we buy, and bequeath equally to my 3 children and my partner. If she dies before me, I could sell this and use part of the proceeds to “pay off” my partner's two children for her share of the joint house.
Also I have been quoted what seems a reasonable price for a mortgage protection policy in my name only and wonder if this would improve our situation, although the house I own is a kind of protection in itself.

if one of you puts down 50% and the other services the debt for the other 50% then you really own the property 50:50.

if you will both be paying the debt then a different % may be appropriate but best to work out the ownership at the start and keep it constant far less complicated than trying to come up with some none equitable based scheme.

You then should also pay for any maintenance/improvement in the same proportions.

The debt belongs to whoever is servicing it and it is easy to make any adjustments for overpayments.

Getting a joint mortgage may not be straight forward and you cannot mortgage 1/2 a house.

£150k over 9 years will be around £1600pm.

understanding how equitable interest work is an essential first step

You also have IHT issues to consider especially if you don't marry as there will be no transferable nil rate bands to use and the normal solution of life interests do not work.

You will need expert advice on getting this tax efficient.

benawhile

Yorkshireman99, I wasn't thinking of a D I Y job and intend to use a solicitor, but before I do that I want to be as well informed as possible. At the moment I can't make up my own mind about the options, and don't even know if my plan is viable. That's why I am posting. If anyone can advise from experience I will be grateful.

Yorkshireman99

benawhile wrote: »

Yorkshireman99, I wasn't thinking of a D I Y job and intend to use a solicitor, but before I do that I want to be as well informed as possible. At the moment I can't make up my own mind about the options, and don't even know if my plan is viable. That's why I am posting. If anyone can advise from experience I will be grateful.

Noted. That is exactly the sort of thing a STEP qualified solicitor should be able to explain to you both what the options are and how to handle the whole process. They will certainly advise that your partner do the same thing so that both your interests are protected. What I was trying to emphasise was that how ever well intentioned detailed advice from unqualified sources, like this forum, can be seriously misleading. There is no one size fits all solution! Remember the old saying "that free advice is worth what you paid for it" is still true as far as the detail is concerned.

benawhile

Getmore4less
Thank you

"if one of you puts down 50% and the other services the debt for the other 50% then you really own the property 50:50."

Obviously a key sentence but I don't understand this.
Please excuse a long winded response until I do!
I am assuming we will put the house in both our names, and the mortgage will be in our names, but how can it be that we own the property 50 50 at a time when we have just bought it and all the money invested is mine?
Am I correct in understanding you to mean that once I have paid the deposit and signed the mortgage, then all the cash I invested in the deposit becomes a joint asset and I have no way of ensuring that it goes only to my descendants if I die first?
What I was thinking was that we would have to review the declaration of trust periodically as the proportion invested changed.
Obviously it would be simpler if we could settle for a fixed percentage, but that would still not be a true reflection even if we both paid the mortgage, as the proportion would still change over time.

What may be the problems with getting a joint mortgage?

We will be marrying, although my own house will be disposed of on my death so my allowance may be used up on that.

Yorkshireman99

benawhile wrote: »

Getmore4less
Thank you

"if one of you puts down 50% and the other services the debt for the other 50% then you really own the property 50:50."

Obviously a key sentence but I don't understand this.
Please excuse a long winded response until I do!
I am assuming we will put the house in both our names, and the mortgage will be in our names, but how can it be that we own the property 50 50 at a time when we have just bought it and all the money invested is mine?
Am I correct in understanding you to mean that once I have paid the deposit and signed the mortgage, then all the cash I invested in the deposit becomes a joint asset and I have no way of ensuring that it goes only to my descendants if I die first?
What I was thinking was that we would have to review the declaration of trust periodically as the proportion invested changed.
Obviously it would be simpler if we could settle for a fixed percentage, but that would still not be a true reflection even if we both paid the mortgage, as the proportion would still change over time.

What may be the problems with getting a joint mortgage?

We will be marrying, although my own house will be disposed of on my death so my allowance may be used up on that.

This just emphasises the crucial need to get professional advice. The extra questions you raise mean there are even more variables that need to be addressed. Wills and the possibility of trusts in such circumstances are just why you need to pay to get answers,

getmore4less

benawhile wrote: »

Getmore4less
Thank you

"if one of you puts down 50% and the other services the debt for the other 50% then you really own the property 50:50."

Obviously a key sentence but I don't understand this.
Please excuse a long winded response until I do!
I am assuming we will put the house in both our names, and the mortgage will be in our names, but how can it be that we own the property 50 50 at a time when we have just bought it and all the money invested is mine?

If you expect the OH to pay the mortgage then they have invested the 50%, you own 50% they own 50%(less the debt that's left) that is very different to you owning 100% less the debt at the start.

You own 100% of 50% the OH owns a small % of the other 50% getting bigger as they pay off the debt.


Am I correct in understanding you to mean that once I have paid the deposit and signed the mortgage, then all the cash I invested in the deposit becomes a joint asset and I have no way of ensuring that it goes only to my descendants if I die first?

no, the trust deed covers that your asset(beneficial interest) would be 1/2 the value of the house and none of the debt

What I was thinking was that we would have to review the declaration of trust periodically as the proportion invested changed.

No reviews needed if you get it right up front

Obviously it would be simpler if we could settle for a fixed percentage, but that would still not be a true reflection even if we both paid the mortgage, as the proportion would still change over time.
Not if you get it right, the issue starts if you decide to change the amount of debt you each service there are ways to cover this without changing the % owned if you both want need to pay off the debt.

What may be the problems with getting a joint mortgage?

ages a good broker may be needed

We will be marrying, although my own house will be disposed of on my death so my allowance may be used up on that.

that will extra work to make what you want legal.


People just can't see there is no difference to what you own between the 3 cases.

pay cash 50:50
pay cash 50:50 (where one borrows it from somewhere)
pay cash 50:50 (where both are on on the 50% debt with a trust deed to define the beneficial interest)

A lot of solicitors like the "get your deposit back method" which is a lot easier to understand and can be OK as long as people understand the implications as it is not a fair way to do it.

Once you get the basics in place you then have to cover the won't pay can't pay and other exit issues.

You have a quite complex IHT situation brewing that needs much more consideration and advice on the various scenario and death orders(including the kids).

Also consider do your kids want a rental property with a tenant?

another change is the way the residential nil rate band work you need to make sure that get used efficiently

benawhile

Getmore4less
Thank you
“Obviously it would be simpler if we could settle for a fixed percentage, but that would still not be a true reflection even if we both paid the mortgage, as the proportion would still change over time.
Not if you get it right, the issue starts if you decide to change the amount of debt you each service there are ways to cover this without changing the % owned if you both want need to pay off the debt. “
Do you mean that a single trust deed can describe the change in proportional ownership in time as the partner that took on the debt gradually pays it off?


What is the “get your deposit back” method?


“Also consider do your kids want a rental property with a tenant?”
Yes, I will have to think more about that. I was assuming that they would not, and they would sell up asap. I believe I can direct that in the will, or is it different when you have a tenant?

getmore4less

benawhile wrote: »

Getmore4less
Thank you
“Obviously it would be simpler if we could settle for a fixed percentage, but that would still not be a true reflection even if we both paid the mortgage, as the proportion would still change over time.
Not if you get it right, the issue starts if you decide to change the amount of debt you each service there are ways to cover this without changing the % owned if you both want need to pay off the debt. “
Do you mean that a single trust deed can describe the change in proportional ownership in time as the partner that took on the debt gradually pays it off?

The % ownership is fixed in your example 50% each what changes is the amount of debt owed by the person paying it off..

what is the “get your deposit back” method?

you get the fixed amounts put in bck then the agreement covers how the rest of the equity is split, the method is flawed but is very common as solicitors seem to like using it

Also consider do your kids want a rental property with a tenant?”
Yes, I will have to think more about that. I was assuming that they would not, and they would sell up asap. I believe I can direct that in the will, or is it different when you have a tenant?

with a tenant the executor/kids would have to sell with the tenant in place which may not attract the best possible price of an vacant possession property or get them out which can take time if they are on a contract.

if you have never been a landlord before you should look into that lot before going down that route.
on this site it gets discussed at
http://forums.moneysavingexpert.com/forumdisplay.php?f=16
there is a guide somewhere in there, also sites like
http://www.landlordzone.co.uk/
can be good resourse.


The first thing is your SDLT bill on the new place at £300k will be an extra £9k(£14k total) as a second property if you keep your old place to rent out.

susieb

Can I ask a question related to the above please. If you make a trust for your share of the house for your children, and let the living partner remain. Does the house count as an asset for benfit purposes for the children.
The last thing I want to do is make things complicated, so for instance, if forever what reason my children lost their jobs, would the value of my house left on my death to them but with partner still living there mean they wouldnt get any means tested benefits.