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26.02.2018

Trust Deeds and Property

Having a Trust Deed is often said to be better than Sequestration because it allows you to retain more control over your property. While Sequestration will often result in the sale of many of your assets, including your home and your car, by a Trustee who has taken control of your finances, Trust Deeds only require the release of equity.

Equity is the value of an asset, after any debts and costs of sale have been calculated. In other words, it is the profit you could make from an asset.

Equity can be released in a variety of ways without having to sell the asset. Trust Deeds are fairly flexible about how you release your equity.

Your Home

  • You have equity in your home if you own it, either in full or in part.
  • Your home equity is the current value of your home – the remainder of your mortgage – costs associated with selling your home.
  • If this number is less than 0, this means you have negative equity, and this is not factored into a Trust Deed
  • If this number is significantly large, then you may be asked to release the equity in your home
  • This is done by remortgaging your home. This means you take out a loan against your home with your bank. Essentially, you can think of it as selling your home to the bank and buying it back again with a new mortgage.

Your Car

  • With a Trust Deed, only cars with a value of over £3,000 need to have their equity released.
  • This equity can be calculated as current value of your car – £3,000
  • If this number is less than 0, it is possible to keep your car
  • If this number is greater than 0, you may be asked to release the equity in your car
  • This is done by trading in your car for a cheaper model. You give the surplus funds to your Trustee to add to the Trust Deed
  • Hire purchase agreements cannot be included in the Trust Deed as a debt, but, providing the payments are not excessive, their repayment will be included as expenditure into the calculations of your monthly repayment costs

Other Assets

  • Your savings are also considered as assets
  • This means that they could be paid into the Trust Deed
  • Your pension fund is not considered an asset
  • If you are receiving payments from a pension fund, it counts as an income, and will be factored into the calculations of your affordable monthly payments. You could be asked to stop making payments into any private pension funds
  • Receiving a ‘tax free lump sum’ from your pension just before, or during a Trust Deed, could be viewed as a lump-sum windfall, and, as such, you may be asked to contribute it to your Trust Deed. If you think this may affect you, it is important to discuss this with your advisor as soon as possible