What is a Deed of Trust?
A deed of trust (also known as a declaration of trust), is an official, legally-binding document that is prepared by a solicitor or conveyancer to record individual shares in a property when you buy a house with one or more people. A deed of trust ensures any net sale proceeds are proportionally and fairly divided.
Read on to find out why this type of deed is so important and why you need it to ensure your share in a property passes onto the beneficiaries in your will.
What is a deed?
A deed is an official, legally-binding, written document that is marked as a ‘deed’ and signed or ‘executed as a deed’, meaning it is signed in the presence of a witness.
A deed witness must also sign the deed and write their name and address (very close to or typically directly beneath the deed owner’s signature) to confirm they have ‘witnessed’ the deed being signed. Each signature to a deed must be individually witnessed by an individual who is not a party to the deed.
A deed will confer a title, decree, benefit or right from one party to another who confirms and acknowledges acceptance of this and the terms of the deed by signing it.
Why do I need a deed of trust?
You need a deed of trust if you want to ensure your share in a property passes to someone else who isn’t a joint owner, upon your death.
Many people mistakenly assume that when they make a will, this will be legally-binding and ensure their estate (including any property, possessions, cash etc they own) will pass on to the beneficiaries stated in their will. However, if you own a property as a ‘joint tenant’, then your share in the property will automatically pass on to the joint owner, regardless of what is written in your will.
To ensure your share in a property passes on to your loved ones when you die, you should purchase a property as ‘tenants in common’ rather than as ‘joint tenants’ and enter into a declaration of trust.
What is a declaration of trust?
A declaration of trust is exactly the same document as a deed of trust in England. It is a legal document you sign in the presence of a witness to confirm exactly what percentage share you have in a property so that if the property is sold, that share will be fairly paid to you or should you die, your share will pass to the named beneficiaries in your will.
A declaration of trust after the purchase of a property will be sent to the Land Registry together with the transfer deed and (if applicable) a mortgage deed. All of these deeds will then be registered against the title to the property and detailed in the Land Registry’s official registers of title.
The cost of a declaration of trust can vary significantly between solicitors from £150 up to £1,000, so it’s always best to shop around and get more than one quote.
In addition to a declaration of trust, you should also make a will when you buy a property to ensure your share in a property passes on to your loved ones should you die. A will alone will not ensure that this happens, especially if you have bought a property as a joint tenant.
When making a will, a probate lawyer should also speak to you about putting your house in a trust to avoid hefty inheritance tax liabilities.
How does a deed of trust work?
When you buy a property with another person in the UK, your solicitor or conveyancer should ask how you would like to own the property: in equal shares as joint tenants or in equal or unequal shares as tenants in common.
See our guide Joint Tenants vs Tenants in Common for an in-depth explanation as to what the differences are between these two types of property ownership.
If you buy a property as tenants in common, you should also enter into a declaration of trust to confirm percentage shares in a property.
A deed of trust on property ensures that you (or if you die, the beneficiaries in your will), receive a percentage share in a property from the net proceeds of the sale, after deduction of any fees and repayment of any mortgage.
Declarations of trust are registered at the Land Registry and a note (restriction) will be made in the property’s registers of title to ensure that when the property is sold, the terms of the deed of trust are strictly adhered to and one person alone cannot sell it.
If my name is on the deeds do I own the house?
In the UK, if your name is on the deeds to a house (i.e. you’re shown as the registered proprietor in the proprietorship register at the Land Registry), then yes, this means you own the house. However, you may not own the house outright - this depends on if there are any other named proprietors in the title registers and ownership is also subject to any legal charge (mortgage) on the property.
If you bought a property jointly with another person as joint tenants, this means you only own half of the property and that when you die, your 50% share in the property will automatically pass to the surviving owner (the other joint tenant referred to in the registers of title).
If you bought the property as a tenant in common with one or more parties, then you will only own the share of the property specifically stated in the deed of trust and upon a sale, your recorded share in the property will pass to you or if you die, your title share will pass to the beneficiaries named in your will.
If you took out a mortgage to buy a property, you would have signed a ‘mortgage deed’ and your mortgage lender’s name will also be shown in the registers of title in the ‘charges register’.
Is a deed of trust legally-binding?
Yes, a properly executed deed of trust is completely legally-valid and is actually more powerful (legally) than the terms of your will and overrides it.
That is why it’s so important to have a deed of trust in place if you own a property to ensure your share of a property passes on to the beneficiaries of your will.
What’s the difference between a deed of trust and a mortgage?
The difference between a deed of trust and a mortgage is that a deed of trust is a deed that clarifies what percentage share you own in a property and a mortgage is a deed that confirms you borrowed money to buy it.
Note: In the US and Scotland, a Deed of Trust means something completely different to what it means in England; in the US it is a type of mortgage and in Scotland, it is the English equivalent of an IVA!
What’s a tenants in common mortgage?
If you purchase a property as tenants in common and need a mortgage, lenders typically allow up to four people to apply for a tenants in common mortgage.
And, if two applicants earn enough money and have good credit scores, a lender may grant a mortgage based on two incomes alone.
For more information and advice, take a look at our useful resources below.