Trust Deeds: what, who and why?

A Trust Deed is like many things in life; until you need one, chances are you won’t have heard of it! Some people have heard or seen an advert and often know the term, but the majority of people we speak to don’t understand what it is until they really start looking for help and get advice. So in this article, we’ll be outlining what it is, who uses it and why- so that if you ever need one, you know a bit more about it.

So WHAT is a Trust Deed?

A trust deed is actually a legal document which has been in existence for centuries. It has slightly different meanings and purpose depending on what part of the world you are from but we’ll be focussing on its meaning in Scotland. The first function of the document is that it places your assets and estate in the care of someone referred to as a Trustee. This person is trusted (the clues in the name) with your estate for the duration of the trust deed, which is usually around 3-5 years. Before 1985, this Trustee could be anyone. However, it was decided that a Trustee had to be a licensed insolvency practitioner and hence an expert in insolvency legislation is required to be able to enter into a trust deed (what became a Protected Trust Deed).

WHO enters a Trust Deed?

Now, I’m sure you’re wondering who would want to give their estate over to someone else for a period of 3 – 5 years. The answer is simple: someone with debt problems. If someone is struggling to afford to pay their debts with their current income, a trust deed can be a vital solution to prevent them from being forced into bankruptcy, and can really help them manage their debt problems.

WHY would someone enter into a Trust Deed?

The real function of a trust deed is to set up an agreement between you and the people you owe money to on how you will pay back your debts. By signing the document, you are confirming that you are unable to pay back your debts in your current situation, which is basically declaring yourself insolvent. However, the trust deed also says that you agree to make a fair contribution to your debts every month and that you agree to do so for a period of 3 – 5 years. This is where your estate comes in- you agree to place your Trustee in control of your estate during that time and the agreement is that if you fail to stick to the agreement, your Trustee has the right to sell off your assets in order to benefit the people you owe money to.

This may still seem a little harsh, but here is the real benefit of the agreement: as part of the deal, the people you owe money to must provide some form of debt relief. This amount is negotiable and depends upon how much each person can afford to pay, however it can often mean that after the duration of the Trust Deed, the majority of the debt owed is cleared! So if you have huge debts, you not only wipe off a large amount of your debt but you are also able to pay towards your debts in an affordable way!

Although a trust deed can be a great solution for people with debt problems, it’s vital that you get good advice before entering into one. You are after all still declaring yourself insolvent, which has consequences for your future potential to get credit etc.