Make a 'declaration of trust' if relying on the bank of mum and dad
With house prices out of the reach for first time buyers, many are turning to the ‘bank of mum and dad’ for a loan or gift for the deposit to them to help get on the housing ladder. It is however especially important that unmarried couples buying a property together make a ‘declaration of trust’, a simple document that states the contributions made by each party.
In the unfortunate situation that the couple should go their separate ways, a declaration of trust will protect the interests of all parties.
In many circumstances, the couple may have put in an unequal contribution to the purchase of the property. A declaration of trust will give credit to the unequal contributions made by each of them by stating that on any sale of the property, the net proceeds are to be split between them by referencing a percentage figure.
The declaration of trust may also state that one party is to receive a fixed sum because he or she has paid the deposit on the purchase price. This arrangement will not give the party who has made the initial contribution the benefit of any property inflation although the sum payable to him or her could be index linked if desired.
The declaration of trust can also cover the contributions made to the mortgage and any outgoings spent on the property. It may also include an option to purchase so that both partners have the option to buy the others share and so keep the home. And if parties cannot agree on the value of that share between them, an independent surveyor would be appointed to determine the price.
As more and more young people have to look to their parents for financial help when buying their first home, the declaration of trust can be used to protect the contribution made by parents. Parents making a contribution should insist on there being a declaration of trust in place as no matter how amicable the initial arrangements may be, they have a habit of getting very messy if the relationship comes to an untimely end.
In addition to a declaration of trust, anyone buying a property should each have a will in place so that they can say what is to happen to their respective interests in the property if one of them were to die. If a couple are not married or in a civil partnership and there are no wills in place, the surviving co-owner will not be treated as the next of kin at law in determining who is entitled to benefit from the deceased co-owners estate.