Deed of Trust
When you buy a house with someone else you may want to consider getting a Deed of Trust. This is a legal document that clarifies who owns what proportion of your home. Read on to find out everything you need to know from why you should consider getting a Deed of Trust, how to get one, costs and things to consider.
What is a Deed of Trust on a house?
A Deed of Trust is a legal document that states the division of ownership of a property. It is commonly used by ‘tenants in common’ who have bought a home together but paid different amounts towards the purchase price.
The Deed of Trust states exactly what percentage of the property they each own and what happens if the property is sold or one of the owners wants to be bought out in the future.
Why do I need a Deed of Trust?
When you buy a property with someone else there are two ways you can structure the ownership of the property. You can either be ‘joint tenants’ or ‘tenants in common’. If you choose to be joint tenants, you own the property in equal shares and must take out a joint mortgage. If one of you dies the property immediately passes to the other owner.
The other option is tenants in common. This means you don’t have to own equal shares of the property and you can pass your share to whoever you choose in your will. You can find out more about the two different ownership options in our guide to buying a home with a partner or friend.
You will need a Deed of Trust if you opt to be tenants in common as it would lay down in a legally binding document who owns how much of the property. For example, let’s say you and your partner are buying a £200,000 property. You are going to put down a 10% deposit and pay for the rest with a joint mortgage. However, you are putting in £15,000 of the deposit while your partner is contributing £5,000. A Deed of Trust will ensure that you each get your fair share of the property when it is one day sold. So, in this example, the Deed of Trust would state that you put in 75% of the deposit while your partner covered 25% of it. Then when sold you would get back 75% and he would get 25%.
You could also record in the Deed of Trust if one of you would be making larger contributions to the mortgage repayments than the other or one of you paid for works on the property. Then the proceeds of any sale would be divided to reflect this extra capital input.
What is a Deed of Trust used for?
Typically, a Deed of Trust is used to make a legal record of the different amounts joint owners have paid into a property. However, there are other things you can include in the document or add at a later date. This includes:
- How much each owner paid towards the property
- What share of the property you each own
- If one owner pays for renovations in the future this can be added to the document and the shares of the property could be changed
- How much each owner is contributing towards ongoing costs for the property such as mortgage repayments or bills
- Any third party – most commonly parents – who have contributed money towards the purchase but aren’t listed on the title deeds. Their investment in the property can be recorded on the Deed of Trust to protect their money
- What will happen when the property is sold or if one owner wants to sell their share.
A Deed of Trust to protect money in property
The most common reason for getting a Deed of Trust written is to protect money that has been invested in a property. This could be because the owners have contributed differing amounts to the purchase. However, Deeds of Trust are also a great way to protect money that has been paid into a property by a family member, such as a parent. Find out more about gifting a deposit.
There are a number of different financial contributions to a home that can be protected by a Deed of Trust. These include:
- The deposit – you can record how much each owner – and any third party – contributed towards the deposit.
- Mortgage repayments – if the owners are not going to repay the mortgage equally you can state what percentage you will each pay
- Renovations – you can set out how any renovation work will be paid for and if it will change the ownership percentages in the property
- Household bills – agree how much you will each contribute towards the ongoing costs of the property
With each of these amounts it could affect what percentage of the property you each own. For example, if one of you initially paid 75% of a £20,000 deposit but then the other contributes £10,000 towards renovation costs you could state in the Declaration of Trust how that contribution will change their beneficial interest in the property. This essentially means you can state that if they put that towards renovations then they will get an increased share of the proceeds when the property is sold.
How to get a Deed of Trust
You can write your own Deed of Trust and get it witnessed but it won’t be legally binding. That means if you fall out with the person you are buying a house with or disagree about who gets what when you sell the property they don’t have to stick to the terms in the Deed of Trust. That pretty much defeats the purpose.
A better option is to pay a solicitor or conveyancer to draw up a Deed of Trust when they are handling all the other legal elements of buying a property. That way you know that the document is legally binding, and all parties will have to stick to it.
Get instant quotes from regulated and reviewed conveyancing solicitors that cover your area.
How much does a Deed of Trust cost?
What you will pay for a deed of trust depends on the individual charges levied by your solicitor or conveyancer and the complexity of the document. The cost varies hugely from solicitor to solicitor. You can expect to pay anything from £100 to £1,000.
Generally, it will be cheaper to get a Deed of Trust written up by the solicitor or conveyancer who is handling the purchase of your property rather than using somebody separate.
If you know you are going to want a Deed of Trust when you are comparing quotes from solicitors to handle your property purchase include it in the comparison. Contact them to ask what they charge for Deeds of Trust and factor that in when choosing your solicitor.
Are Deeds of Trust common?
According to recent research in 2022 by Zoopla, more than a quarter (27%) of those who bought a home and then split up claim they lost out as proceeds of the sale were not split fairly. Of those, seven in ten (72%) said that their partner received more than their fair share – or that they were not treated fairly. The rest (28%) admitted that they got more than they rightfully deserved.
In the event of a break-up, most people will be reliant on getting their property investment back to finance their future living arrangements. Indeed, 37% say that they had no personal savings whatsoever when they split up with their partner– rising to 46% for women.
Despite this, just 15% say they took out a deed of trust to protect their share. Meanwhile, a mere 7% had a property break-up plan clarified as part of a prenuptial agreement.
Getting a Deed of Trust online
You can cut your costs slightly with a Deed of Trust by using an online service. Several solicitors offer Deeds of Trusts online. You fill out the forms and a legal professional checks them before sending you completed legal documents. But just be certain that this will save you money – we saw charges of around £200 – you may find your own solicitor will do it for a similar fee.
Deed of Trust template
Several websites offer Deed of Trust templates that are either free or cost under £35. But be very careful about using them. Don’t assume that the person drawing up the template knows any more about the legal requirements of the document than you do. We saw some websites offering templates that didn’t understand the basic concept of a Deed of Trust.
We wouldn’t recommend using an online template. Getting a legal professional to draw up a Deed of Trust for you costs relatively little when compared with how much you are investing into a property. It is worth that cost to know you have a legally binding document that will protect your investment. If you’re looking to buy a home and want a deed of trust drawn up at the same time, get quotes from local conveyancing solicitors today.
Do I need to register my Deed of Trust with the Land Registry?
Once you have a Deed of Trust it does not need to be recorded on your title deeds. It’s not legally required to be registered anywhere so can remain private. However, you can organise for it to be registered with the Land Registry if you wish. This will ensure the property can’t be sold without the consent of the people on the Deed of Trust.
Can I get a Deed of Trust after purchase?
Yes, it is possible to get a Deed of Trust drawn up after you have purchased a property. In order to do this, you will need a current valuation of the property – that all the joint owners agree with. You can then agree the terms of the Deed of Trust and get it written up by a solicitor. The Deed will be legally binding from the date it is signed and witnessed.
Who can witness a deed of trust?
For a Deed of Trust to be legally binding you must have a witness when you sign. Your witness needs to:
- Be over 18
- Have full mental capacity
- Not be related to you
Can I change a Deed of Trust?
You may want to amend a Deed of Trust if circumstances change. Minor changes can be included by adding a deed of variation to the original document.
However, for major changes it may be wiser to have the Deed of Trust rewritten. This could be because:
- The property’s value has changed significantly due to renovation work
- The people who own a stake in the property has changed
- The ownership split has changed
What is the difference between a Declaration of Trust and a Deed of Trust?
When reading about Deeds of Trust there is a little bit of confusion as, technically, a Declaration of Trust is different to a Deed of Trust, but the two terms are often used interchangeably.
If you are speaking to a solicitor and arranging to have one drawn up it is important to understand the difference and make sure you use the right terminology.
A Declaration of Trust is a simple document that states who benefits from the income or capital gain of a property. For example, a husband and wife may use a Declaration of Trust to stipulate that the lower earner of the two is the 100% beneficial owner of a buy-to-let property, so any income belongs to them. A Declaration of Trust isn’t a legal document and doesn’t need to be witnessed when it is signed.
A Deed of Trust includes a declaration of trust within it, but it is a more detailed document that sets out your intentions as co-owners of a property. For example, how the ownership of the property is split and what will happen when the property is sold. A Deed of Trust is a more robust legal document and offers greater protection than a Declaration of Trust.
Frequently Asked Questions
Can I write my own Declaration of Trust?
A Declaration of Trust is a simpler agreement than a Deed of Trust. It usually just stipulates who are the beneficial owners of a property. You can write it up yourself, but it will not be legally binding and could be easily challenged. We recommend instead using a conveyancing solicitor to draw one up when you buy your property.
What is a floating Deed of Trust?
A floating Deed of Trust, also known as a commensurate share deed of Silver Deed, is the next level up in complexity from a standard Deed of Trust. It allows joint owners of a property to take into account a variety of costs that could increase their beneficial interest in a property. For example, you could log in a floating Deed of Trust that one of you is paying for substantial renovation works or an extension which will increase their beneficial interest in the property.
A floating Deed of Trust will include a formula that distribute the proceeds of any sale of the property taking into account each owner’s payments towards the property whether that’s a deposit, mortgage repayments, renovations or household bills.
For example, let’s say you are buying a property with your partner. You are paying an equal share of the deposit so get a fixed Deed of Trust that states when the property is sold, you’ll split the equity 50/50. Then a couple of years down the line you split up and your partner moves out. They stop contributing to the mortgage. A few years later you agree to sell the property but, in the meantime, you have made all the mortgage repayments. With a fixed Deed of Trust your partner would still be entitled to 50% of the proceeds of the sale. With a floating Deed you would have increased your stake in the property with your mortgage repayments.
This type of Deed of Trust cannot be drawn up without a solicitor and can overcomplicate things so only use if your situation is likely to be complex.
Can a Deed of Trust be overturned?
An informal Deed of Trust that is drawn up between parties without a solicitor can be fairly easily overturned if one party argues against it. However, if the document has been drafted by a solicitor and your signatures have been witnessed it is a legally binding document that is difficult to overturn and would involve a court process to do so. However, if all parties agree then a Deed of Trust can be overturned.
Who keeps a Deed of Trust?
If you use a solicitor to draw up a Deed of Trust, they should keep a copy on file. However, it is also wise for all parties affected by the Deed to keep a copy in a safe place.
Do I need to inform my mortgage lender of a Deed of Trust?
This really depends on what the Deed of Trust is being used for. If it is simply stating how joint owners of a property – who are all named on the mortgage – are going to divvy up any future proceeds from the property, then your mortgage lender is unlikely to need to know.
However, if you are using a Deed of Trust to protect money that is being paid towards the property from a third party who isn’t on the mortgage – such as a parent – then your lender will probably want to know about it. This is because they may amend their mortgage offer or want the third party to sign a waiver agreeing either that the money is a gift that they won’t get back if the property is sold or that the mortgage lender’s interest in the property comes first.
Cancelling a deed of trust
If all the parties affected by a Deed of Trust agree, then the document can be revoked.
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