House purchase, unequal shares, cash and trusts

benawhile

My partner and myself are buying a freehold house for 300K. It needs a lot of work, possibly another 75K worth. I am putting up 225K from the sale of my current house. I also have another 100K from an inheritance, mostly to be put by for improvements. My partner currently has a higher income than me and is taking on repayments for the 75K mortgage, which is in both our names. We will do a declaration of trust, tenants in common, with the 75/25 portion mentioned.

We both have grown up children, to whom we intend that our wills will distribute our shares of the house on second death.

We are seeing a STEP solicitor about our wills. He is being very helpful but I am nonetheless very confused about the options presented for ring fencing our respective shares of the house. I also wish to ring fence my 75K in some way so that if I die before we have finished upgrading the house either its full value goes into the house or if my partner downsizes the profit is protected for my children in the correct proportions.

We have got as far as the solicitor suggesting a flexible life interest trust and possibly a !!!8220;letter of wishes!!!8221;, and that we review in two years after I have spent money on improvements, and also because my partner, who is due to retire then, may decide to carry on working. If they don't, their income will reduce and we will have to share the mortgage repayments for the remaining 5 years.
We are taking out decreasing life insurance to caver the mortgage.

One difficult question is, if the house increases in value from inflation, should the increase be split 50 50 or in the proportion of our share when the estate is distributed? I think it should be in the same proportion as our share but is this fair?

Another question is, if nothing else changes but I spend the entire 75K on improvements, how do I protect this increased share for my children? Even if it isn't spent, it still needs to be protected for them, but it might be that if the survivor downsizes they might be able to distribute some cash early,
and I am happy for this to go 25% each to my partner and my 3 children, as in my current will, see below.

My current will, which I realise will be invalidated, but which may unfortunately remain in force for a few days after we complete in a few days, due to short notice of the completion, states that my estate is divided equally between each of my 3 children and my partner, 25% each.

Our children have been made aware that unless the survivor wishes to downsize, they will have to wait until we have both gone before they inherit anything.

We intend to marry asap but not this year

I know it might seem odd to ask here when we already have a STEP solicitor, but my head is spinning with all this and I wonder if anyone can point out anything I have missed or got wrong to help my head clear before our next meeting with the solicitor.

benawhile

Apologies, this should be 75K not 25K as originally posted.

xylophone

The house will cost £300,000.

You are putting up a deposit of £225,000 and you and your partner are borrowing £75,000 on a joint mortgage.

You are each taking out insurance to cover your death(s) before the mortgage is repaid.

The house will be registered as TIC on a 75/25 basis.

I would suggest that you both pay the mortgage in equal shares from the beginning.

The house will require work - you should contribute 75% of the cost of the works while she contributes 25%.

Therefore split each bill (from plumber/bricklayer/electrician etc) on this basis.

You say that your partner is well paid so presumably she can afford this.

If she can't, then make her a loan of the amount(s) in question, to be repaid as mutually agreed - make a formal written record of any loan should she die before repayment then the loan is a debt payable from her estate.

Thus your 75% of the value of the property remains constant.

You and your partner will each leave your interest in the property in a life interest trust to the other.

benawhile

Thanks for your reply. Before I go in to it, one question. If we both pay the mortgage in equal shares, won't that upset the 75/25 balance? If partner pays all the mortgage that is the only way they can buy into 25% of the house. My partner has no capital at all.

xylophone

Thanks for your reply. Before I go in to it, one question. If we both pay the mortgage in equal shares, won't that upset the 75/25 balance?

Sorry yes - I got carried away!

You have capital of £325,000 so could buy the property outright.

Could you do this, register as TIC and then set up a loan agreement between you and your partner for the £75,000 secured against her interest in the property?

The insurance policies would be set up to protect your interest in the event of death.

She would repay you on a monthly basis from her salary (you could make this interest free) and also 25% of the renovation bills as they arise?

benawhile

It might have worked, but the mortgage is already in place. We are completing in a few days.

Tom99

[FONT=Verdana, sans-serif]For a start your deed of trust should not just say you own 75/25. Ignore the extension for the moment and your deed of trust should say, if your partner is always paying all the mortgage:

[/FONT][FONT=Verdana, sans-serif]"[/FONT][FONT=Verdana, sans-serif]On the sale of the property:[/FONT]
[FONT=Verdana, sans-serif]You get - 75% of the gross sale proceeds (less just the sale costs)[/FONT]
[FONT=Verdana, sans-serif]Your partner - gets what left after paying the mortgage"

[/FONT] [FONT=Verdana, sans-serif]That way the amount you partner gets back will vary over time as the property increases in value and the mortgage is paid off.

[/FONT] [FONT=Verdana, sans-serif]Take a situation 5 years down the line when the value is now £400k and the mortgage is £60k:[/FONT]
[FONT=Verdana, sans-serif]You get - £400k*.75 = £300k[/FONT]
[FONT=Verdana, sans-serif]Your partner gets - £400k-£300k-£60k=£40K

Your partners share represents the 33% increase on the £75k plus the £15k paid off the mortgage

[/FONT] [FONT=Verdana, sans-serif]So you can see its not a straight 75/25, that will only occur when the mortgage is paid off.

[/FONT] [FONT=Verdana, sans-serif]Regarding the extension it will probably be easier when you know all the figures and just rewrite the DOT rather than trying to forecast exactly what might happen in the future.

[/FONT] The Land Reg do not register deeds of trust as such or the %s but their existence can be protected on the register by way of a restriction. See thier online guidance on Joint property ownership and Private trusts

benawhile

That makes sense, thank you. I will check that is written in the D o T. At the moment I don't think we will get it all done in time for completion. Partly my not allowing enough time and partly the conveyancers proposing a completion date for everyone but not getting exchange of contracts done until only two weeks before completion.

Tom99

You can sign the DOT anytime after you complete, better to get it right than rush it.