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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!!!8221;

    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; 07-04-2018 at 2:41 AM.
    • 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:-

    !!!8220;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!!!8221;

    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!!!8217;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
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    Comms69
    FGS they're getting married and he's pulling this nonsense.... why even bother getting engaged?!
    • economic
    • By economic 7th Apr 18, 12:06 AM
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    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.
    Originally posted by Tom99
    Hi there

    Sorry to bring this up again after so long! I had a quick question - since the property will be owned as tenants in common, wouldn't my friend NEED to have a share split defined? In which case what would it be as per your example? Of course as you said its not that simple and the share split is actually dynamic - it changes over time. So if my friend owns it as tenants in common, can he just not have a set share split defined but then isn't it a requirement for there to be an explicit share split?
    • Tom99
    • By Tom99 7th Apr 18, 3:23 AM
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    Tom99
    Hi there

    Sorry to bring this up again after so long! I had a quick question - since the property will be owned as tenants in common, wouldn't my friend NEED to have a share split defined? In which case what would it be as per your example? Of course as you said its not that simple and the share split is actually dynamic - it changes over time. So if my friend owns it as tenants in common, can he just not have a set share split defined but then isn't it a requirement for there to be an explicit share split?
    Originally posted by economic
    Yes the DOT needs to define the explicit split of net sale proceeds but that does not have to be a simple 50/50, 60/40, 10/90 or whatever. That would only apply if the property was being bought outright with no mortgage and each partner was paying say 60/40 etc.

    In cases like yours where there is unequal deposits and the mortgage is shared either 50/50 or some other ratio then the DOT will specify the two part formula I outlined above or something similar.

    As far as the legal title at the land registry was concerned it will merely be noted that the property is held as tenants in common and a restriction added to the title to indicate that such a deed of trust exists and therefore cause a lender, buyer or indeed owner to take note.

    The deed of trust itself is a separate document signed and witness by both parties (and kept safe!) which sets out how the proceeds of any sale in the future will be split.

    It will contain words exactly like I set out above or something similar, there is usually more than one way of expressing a two part formula but getting to the same result.

    So just to repeat what the DOT might actually say:

    "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"

    Obviously the %age which go into part a and b of the above formula will depend on how the deposit and the mortgage repayment is to be provided and paid for. In the above example the mortgage is being split 50/50 but that is just an example.

    This two part formula is dynamic and the share of the net proceeds each party will get will vary over time as the mortgage is paid off and the house increases in value.

    What is the price of the property involved including fees, how much are each of them putting in as a deposit and how are the going to share the mortgage repayments? That information will determine the %ages in the above formula?
    Last edited by Tom99; 07-04-2018 at 3:26 AM.
    • SDLT Geek
    • By SDLT Geek 7th Apr 18, 11:53 AM
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    SDLT Geek
    Thanks Tom99 for the excellent (and patient!) explanations.
    • economic
    • By economic 7th Apr 18, 8:25 PM
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    economic


    What is the price of the property involved including fees, how much are each of them putting in as a deposit and how are the going to share the mortgage repayments? That information will determine the %ages in the above formula?
    Originally posted by Tom99
    Thanks Tom, this is really really helpful - if i could thank you 10x i would!

    The property price my friend says is 400k. Not sure how much stamp and solicitor/surveyor fees will be. The plan is for my friend to put in all of the deposit which amounts to 200k and for the couple to split all other costs 50/50. So the DOT would be like how you have stated it except the property price and mortgage amounts are different (and therefore the % would be 50% instead of 33%). Is this fair? There is an new issue that has come up recently with them:

    My friend's fiance now wants not have to pay for any costs but to instead put that money towards the deposit of the house and have a corresponding equity stake legally. She expected my friend to have to pay all the costs instead. Of course my friend is not very happy, i think it was more pressure from the fiance's parents as they don't like the money to go wasted. Obviously this is not fair on my friend at all. do you have any suggestions what i should advice to my friend?
    • Pixie5740
    • By Pixie5740 7th Apr 18, 8:43 PM
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    Pixie5740
    Any advice? How about don't get married because once they've been married for a while and children are involved this DoT will be pointless.

    If they are insisting on the DoT then neither of what they are proposing is fair i.e. all her money goes on the costs of buying or none of her money goes on the costs of buying. Paying the SDLT, solicitors fees, surveys etc 50/50 would be more fair and then whatever money she has left could also contribute towards the deposit.
    • economic
    • By economic 7th Apr 18, 8:51 PM
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    economic
    Any advice? How about don't get married because once they've been married for a while and children are involved this DoT will be pointless.

    If they are insisting on the DoT then neither of what they are proposing is fair i.e. all her money goes on the costs of buying or none of her money goes on the costs of buying. Paying the SDLT, solicitors fees, surveys etc 50/50 would be more fair and then whatever money she has left could also contribute towards the deposit.
    Originally posted by Pixie5740
    I never said the fiance would have to put all her money towards costs. Just that she should pay 50% of the costs. Then whatever she has left can be put towards the deposit and DoT reflecting this accordingly.

    My friend is only worried now given he has a large sum of money and the fiance has very little relatively. Once they have kids etc he wouldn't care at all by then. Its a short term protection of his assets he is concerned about in case of separation etc.
    Last edited by economic; 07-04-2018 at 8:54 PM.
    • Pixie5740
    • By Pixie5740 7th Apr 18, 8:56 PM
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    Pixie5740
    You said that your friend's plan was to put in all of the deposit and split the costs 50/50.
    • Tom99
    • By Tom99 7th Apr 18, 9:02 PM
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    Tom99
    Thanks Tom, this is really really helpful - if i could thank you 10x i would!

    The property price my friend says is 400k. Not sure how much stamp and solicitor/surveyor fees will be. The plan is for my friend to put in all of the deposit which amounts to 200k and for the couple to split all other costs 50/50. So the DOT would be like how you have stated it except the property price and mortgage amounts are different (and therefore the % would be 50% instead of 33%). Is this fair? There is an new issue that has come up recently with them:

    My friend's fiance now wants not have to pay for any costs but to instead put that money towards the deposit of the house and have a corresponding equity stake legally. She expected my friend to have to pay all the costs instead. Of course my friend is not very happy, i think it was more pressure from the fiance's parents as they don't like the money to go wasted. Obviously this is not fair on my friend at all. do you have any suggestions what i should advice to my friend?
    Originally posted by economic
    Let assume the costs are £30k so total cost is £430k

    Of which your friend is putting in £215K, fiance £15k and mortgage £200k.

    Therefore you friend is buying 46.5% ((215-15)/430) more of the property than fiance, so on sale:

    • 46.5% of gross sale price to friend plus 50% of remainder
    • 50% of remainder to fiance

    Or if you think it sounds fairer but it will mean the same result:

    • 50% of gross sale price to friend
    • 3.5% of gross sale price to fiance
    • Remainder split 50/50
    • timbo29
    • By timbo29 7th Apr 18, 9:53 PM
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    timbo29
    FGS they're getting married and he's pulling this nonsense.... why even bother getting engaged?!
    Originally posted by Comms69
    I think it is a sensible idea to get a DoT.
    He knows that he will stay with her the right reasons, and not just because he is worried about loosing cash if he dumps her.

    You never really know someone until you live with them.
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