Imagine if you faced with a scenario where you’re in joint ownership for a property with someone. As well, the relationship turns really bad, really fast! This legal document can help to smooth things out in a court of law. Trust is a valuable commodity. However, luckily, the type that we’re referring to here comes with paperwork to keep it safe. The Property Trust Deed is a rather helpful legal document that can be used in Malaysia’s property market for situations that involve shared or partial ownership. This can be particularly helpful in terms of co-investing in the property. Whereby, the property is purchased by more than one party, and ownership is divided between them. So, just what is a Deed of Trust, when might it use? And, what else do you need to know about it?
What Is The Property Trust Deed All About Then?
The Deed of Trust is a legal document that records. It formalizes the ownership agreement between two (or more) parties in a property. This document will set out the ownership shares, rights, and financial obligations relating to this shared property ownership. That can be things like the total percentage of property owned, obligation to pay home loan repayments, or quit rent. And, any other financial considerations relating to a shared piece of property.
The ‘trust’ element comes from the structure of the deal. For example, Person A signs the Sale and Purchase Agreement (SPA) for the property. And then, the Deed of Trust created to acknowledge the shared ownership of both Person A and Person B. In other words, Person A has the property in his/her ‘trust’. And, the Deed of Trust legally recognizes the shared investment/involvement of Person B.
How does a Property Trust Deed work?
The Property Trust Deed contains the instructions on how to manage the assets and how to distribute the income or the assets itself to the respectively named beneficiaries. The diagram below shows how a simple Insurance Trust works. You can see the Trust Deed is the controller of how the assets in the Trust are to be distributed or used.
When Might A Property Trust Deed Be Used?
You’re probably wondering why anyone would use one for co-ownership? Many people take out joint property purchases. And, rely on the existing legal protection or terms that apply to this type of ownership. That’s fine if things are smooth and uncomplicated. But, can become extremely challenging if the situation suddenly takes a turn for the worse, or relationships break down.
In some countries, a Deed of Trust used as a form of protection for the inheritance process, as part of estate planning. British Common Law follows a principle known as the ‘Right of Survivorship’, in the case of joint property ownership. Maybe that sounds a bit Hunger Games-ish? What it essentially means is that if an owner on a joint ownership agreement dies. The property automatically transfers into full ownership of the surviving party.
Love transfers are a legal method that offers a simple solution to transfer ownership of property between family members and loved ones. Malaysia doesn’t actually follow this convention. But instead, passes down ownership as prescribed under existing inheritance rules and laws. But, that doesn’t mean there’s no need for some sort of formalized ownership agreement!
A Deed of Trust can clearly lay out the inheritance intentions and wishes of a co-owner in the event of their death. This can then form part of any legal proceedings to establish the rightful inheritor of their share of the property. Obviously, this declaration must comply with the wider rules and regulations of the Malaysian legal system.
How is a Property Trust Deed different from a Will?
The person (Settlor) transfers legal ownership of selected assets to the Trust while still alive. The Settlor can also be a Trustee of the Trust. And observe the Trust Deed at work and make changes to the Trust Deed if required. The Trust is not part of the person’s Estate.
A Will only takes effect on the death of the person (Testator), leaving the distribution process to the Will and the government. Any part of the Estate. If not mentioned or covered in the Will, made intestate by the Government and will be distributed based on the Distribution Act.
What can be written into the Property Trust Deed?
Anything can be written into a Property Trust Deed. A professional trustee like Rockwills with its team of professionals will guide you on what can be written into the Trust Deed.
There are many types of Trusts. This can be for:
- tax management,
- inheritance and transfers,
- pet custody,
- guardianship of children,
- retirement income,
- insurance proceeds management,
- steady income for loved ones,
- control heirlooms from disposal and sale,
and many more items can be written into the Trust Deed.
Other Key Scenarios
There are a few other key scenarios where a Deed of Trust might need/called upon in Malaysia’s property market:
1. Property Trust Deed: Scenario One
Firstly, a properly crafted and stamped Deed of Trust makes a legally recognized declaration of shared ownership that marks out clearly the rights and responsibilities of each party. It is VERY important indeed if a disagreement causes one party or the other to fight over the ownership. Or, wishes to secretly sell off their share of the property. Without a formal written agreement, these kinds of arguments can get really messy, really fast.
2. Scenario Two
Secondly, a Property Trust Deed can be extremely valuable in cases where ownership not shared equally (read: split 50/50). If, for example, you own 35% of the property and your co-investor owns 65%. You’ll want it clearly written down what the rights and obligations expected of that 35% ownership.
On the other hand, we’re quite sure that the person with the 65% investment will want it officially recorded that they own the majority share. If there’s no Deed of Trust in scenarios of uneven ownership, then one party could potentially lose out big-time from the agreement. But, with the assumption that the property’s value/assets should be split 50/50 at the time of sale.
3. Property Trust Deed: Scenario Three
A third use of the Deed of Trust could come in a scenario where perhaps a friend or relative has helped you to partially fund a property purchase. Person A and B may have only been able to scrape together 80% of the purchase price. So, Person C (a kindly relative with lots of cash to spare) offers up the additional 20%. A Deed of Trust can legally acknowledge and formalize this agreement.
4. Scenario Four
Finally, a Deed of Trust could come in useful if the property ownership changes at a later point in time. Perhaps you build an extension at the front of your landed property, and one party pays the money. Or, a relative lends you the funds. A Deed of Trust can then be introduced to reflect the shifting share of ownership.
How do I create the Property Trust Deed?
- You need the help of a Professional Estate Planner.
- The estate planner needs to have a team of people who can support the different types of Estate complexity for your Trust Deed requirements.
- This estate support team should include specialist lawyers, accountants, tax and finance, and company secretaries.
- Rockwills franchisees are professional estate planners, with in-depth training in estate planning, Rockwills estate planning processes, and support services.
What’s Important To Include In A Property Trust Deed?
Obviously, this document is only as valuable as the information recorded on it. There’s no single, definitive format for a sample. But, some important elements to record are:
- Name and address of all invested parties.
- Value and share of ownership at the time of purchase.
- Co-investor responsibilities for payment of loans, maintenance, quit rent, and other outgoings.
- Terms for decisions about property, including sales price, partitioning, etc.
- Inheritance considerations if either co-proprietor dies.
- Calculations relating to the share of profits for rental or sale of the property.
The Property Trust Deed is a fairly flexible document. Moreover, there’s really no definite scenario where it MUST be used. It’s up to the parties involved in a property transaction to take the initiative and have this document drafted. Think of it as smart planning for a smoother tomorrow!
You can, of course, choose to create one by yourself if you’re trying to cut costs. But, like most complex legal documentation. It not recommended doing this. If you create your own Deed of Trust, there’s a chance you might overlook important elements of the agreement. Or, create an agreement that’s not legally binding.
We recommend you hire an experienced lawyer to help draft your agreement. This will mean all parties can be confident that the Deed of Trust is complete. And as always with legal documents, don’t forget to get it stamped! An officially stamped document is permissible in court if the worst does happen. And, your disagreement turns into a full-blown legal dispute. Therefore, you’ll be happy you remember that one little stamp after all!
One final point to note is that the Property Trust Deed is one option to record and formalize co-ownership. However, a joint-ownership agreement (JOA) is another style of agreement that’s increasingly referenced in Malaysia. This fulfills the same function as a Deed of Trust. And, it has similar results in terms of officially recognizing the terms and conditions of a jointly owned property.
If a relationship does, unfortunately, break down. There’s no need for you to feel trapped in a co-ownership property. What is Section 145 of the National Land Code 1965? It provides the means for a co-owner to apply to the court for termination of co-proprietorship. And, to sell off the property in which manner that the court decides. That’s when a Deed of Trust could really show its value. (Source: Red Cover)