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Bank of Mum and Dad

Nov 24, 2014

It is becoming increasingly more difficult to step on the housing ladder. This has resulted in many children and grandchildren relying upon the bank of “Mum and Dad” and “Nan and Grandad” to assist them in getting on the property ladder. Often this money is loaned to children and grandchildren without consideration of the implications.

It is important that the loan or gift is recorded accurately to reflect your intentions otherwise if your child or grandchild divorces or separates from their partner at a later stage the monies may no longer benefit who you intended.

Investments in property can be protected by way of a Declaration of Trust to ensure that the person who you wish to benefit from any monies invested will moving forward.

What is a Declaration of Trust?

Declarations of Trust are used when a property is bought by two or more people. It is a legally binding document which records the financial agreement between joint owners, whether these are a cohabiting couple, friends living together, business partners or cohabiting relatives.

Why might I need a Declaration of Trust?

A Declaration of Trust is essential if you are contributing different amounts to the deposit, fees or mortgage payments. The document will clarify:

  • The percentage of the deposit each person will pay
  • The percentage of the property each person will own
  • How much each owner will contribute towards mortgage payments
  • How much each owner will contribute towards fees

What happens if I want to sell?

Difficulties can arise if there is a relationship breakdown or one party wants to sell. A Declaration of Trust can clarify:

  • What will happen if an owner decides to sell their share
  • What proportion of the sale proceeds each owner will receive if the property is sold
  • How any mortgage on the property will be paid off

When should a Declaration of Trust be created?

The document should be drafted when the owners and anyone who may have financially contributed are in agreement. The document provides clarity to stop future disagreements over contributions and intentions later on. Such disputes can be time consuming and costly both financially and emotionally. 

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