Trust deed vs deed of trust – what’s the difference?

July 6, 2018

It is easy to see why a trust deed and a deed of trust may be confused with each other, however, in reality they are entirely different things and you should know the differences between the two if you are considering entering into a trust deed or any other formal debt solution.

What is a trust deed?

A trust deed is a formal insolvency procedure for those struggling with their debts. In order to qualify for a trust deed your debts must be a minimum of £5,000 and you must have lived in Scotland for at least six months. A trust deed is a legal agreement which is entered into between yourself and your creditors which typically lasts 5 years. During this time, you will be required to make affordable monthly repayments which will be divided between your creditors. Your trust deed will be looked after by a trustee who will ensure your payments are paid to your creditors on a fair and proportional basis. After the trust deed comes to an end, any remaining debt will be wiped out and you will be debt free.

You will be able to include the majority of your debts in a trust deed, although certain things are exempt. Debts you cannot include are student loans, court fines, secured debt (such as a mortgage or a second charge), child maintenance (including arrears), and any debt which has accrued through fraudulent activity.

There are various advantages and disadvantages to a trust deed, all of which need to be considered before you go ahead. On the plus side, all interest will be frozen and creditors must direct all correspondence to the trustee managing the plan rather than yourself. This in itself can be a huge relief to those who may have spent months avoiding threatening phone calls and letters demanding payment. You are still able to have a bank account, and the payments you agree to make can be altered if you experience a drop in income or your circumstances change.

However, there are also downsides to this arrangement which you must bear in mind. If you fail to keep up with the agreed payments, your trustee can petition for your sequestration. You should remember that a trust deed will negatively impact your credit file, which could make it more difficult for you to obtain credit even after the trust deed comes to an end; this does not just mean loans and credit cards may be hard to secure, but you may also have problems when signing up to a mobile phone contract, paying bills by direct debit, and even requesting a cheque book from your bank.

What is a deed of trust?

A deed of trust, sometimes known as a declaration of trust, is a legal document drawn up by a solicitor in order to protect the differencing interests in a property or any other valuable asset. They are typically used by unmarried couples who are purchasing a house together, particularly if the deposits each individual is putting down are different. A deed of trust sets out what each individual owns, and what each will get back, either as a fixed amount or a percentage amount, in the event of the property being sold.

Example: An unmarried couple are purchasing a property worth £150,000. One half of the couple has a £50,000 deposit saved, whereas the other party can only contribute £15,000. They pool their money together and purchase the property as joint owners but draw up a deed of trust which makes clear the respective contributions.

Five years later the couple separate and sell the property which has now increased in value to £200,000. Depending on the terms drawn up, each party will be entitled to take back their respective deposits and share the increase in value equally, or if the deed of trust was set up on a proportional basis, the individual who contributed the large deposit will be entitled to 33.33% of the sale price due to their 33.33% initial deposit (£66,666), with the other party walking away with 10% of the sale price which reflects the 10% deposit they put down.

Next steps

If you are considering a trust deed, or any other debt solution, you should make sure you seek professional advice before you make a decision. Scotland Debt Solutions are experts in personal debt and can help you understand all of the options available and suggest the course of action which is most appropriate to your individual situation. As the options for tackling debt are different in Scotland to those available in the rest of the UK, you should make sure you speak to a company who understand the Scottish system inside and out. With 4 offices across Scotland, we are perfectly placed to help you understand your options and look towards a debt free future.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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