Is a Trust Deed a Good Idea?

Trust deeds assist thousands of people in managing unmanageable debts and reducing monthly repayments to amounts they can afford to make on a regular basis. However, trust deeds are not for everyone, and there are other debt management options that can be just as successful, or perhaps better.

Whether a trust deed is a good idea or not, the choice to continue with one is dependent on you, your affordability, and what is beneficial for your long-term financial security. This article will explain what a trust deed is and when it is used, the process of obtaining one, as well as its advantages and disadvantages.

What Is a Trust Deed?

A deed of trust is a legal instrument that functions similarly to a house mortgage. It ensures the completion of a real estate transaction between a borrower and a lender. It is defined as an arrangement between a borrower, a lender, and a third party known as the trustee.

Deeds of trust function in the following manner: a lender lends money to a borrower for the purchase of a property. In return, the lender obtains a promissory note guaranteeing repayment of the borrowed amount. During the loan duration, the title is held by a trustee.

Trust Deed Advantages

1. Fees are reasonable and well-regulated
A predetermined administration charge and extra costs based on a proportion of the cash in the estate will be announced to you and your creditors at the beginning. When funds are available, these fees will be deducted from the estate.

2. Legal protection is provided
Since you are in a protected trust deed, your creditors will no longer be able to take legal action against you, such as sequestration or bankruptcy.

3. You just pay back what you can afford
Being in a trust deed entails repaying reasonable sums over the term of the agreement. Your Insolvency Practitioner (IP) will go over all of your living expenses with you to establish how much money you will need to cover your reasonable living expenses.

4. The repercussions are not as severe as bankruptcy or sequestration
Possessing a protected trust deed is a significantly less burdensome choice than declaring bankruptcy. The latter entails a greater social stigma and precludes you from serving as a director of a corporation or holding public office.

5. They are effective for people with steady salaries
If you’ve had a steady income, a trust deed may be the best option for you. Making timely payments is critical to maintaining it and eventually getting out of debt. You just repay how much you can afford in accordance with the terms agreed upon with your IP.

Trust Deed Disadvantages

1. You will be unable to obtain credit
Being in a trust deed makes it nearly impossible to obtain credit and also for up to six years from the day you signed it.

2. They are not appropriate for secured obligations
If you have a high amount of secured debt, a trust deed might not be the best option. This is due to creditors’ ability to easily repossess their assets.

3. They can cause issues for business owners
If you own a business, you might find that if you sign a trust deed, your bank will withdraw your business banking facility. Obtaining a business banking account offshore may also be tough.

4. Your trustee has the authority to claim new assets

If you get money or are given property within four years of the commencement of your trust deed, your trustee can place a claim on it and use it to pay off some or all of your debts. It’s a critical issue if you’re expecting an inheritance or co-own the assets as a cohabiting couple, but it also extends to any other form of windfall reward, such as a lottery victory.

Advice from Caversham Solicitors

You need to be fully informed of the merits, cons, and alternatives of trust deeds. Remember, just because a trust deed isn’t right for you doesn’t mean you can’t get aid. The sooner you seek assistance, the sooner you will be able to grasp your alternatives. If you are wondering whether it’s a good idea for you or if you’d like to get a trust document drawn up, get in touch with our solicitors today.