A Declaration of Trust is a legally binding agreement between joint owners of a property and/or anyone else who has a beneficial or financial interest in the property.
The agreement is usually made at the time of buying the property.
The purpose of a Declaration of Trust is to remove any uncertainty as to what will happen to each person’s money when the property is sold or when one person wants to be bought out. Setting out the financial arrangements at the outset will provide clarity and reduce any disagreements in the future.
Who Should Get a Declaration of Trust?
- If you are buying a property with someone else and have put different amounts into the property
- If someone else is helping you buy a property and you want to protect their money. A Declaration of Trust can specify when and how much money should be repaid, and in what circumstances this money should be repaid. The Deed can provide reassurance to the person investing.
- If you buy a property with a business partner. It can reduce the risk of disagreement and protect everyone’s investments.
- If you are a cohabiting unmarried couple. Married couples have different rights to unmarried couples.
- Cohabiting friends or cohabiting family members and have put different amounts into the property.
- If you are buying with someone who is not named on the mortgage.
Joint Tenants or Tenants in Common?
There are two ways to buy a property jointly:
- Joint Tenants is when the owners each own the property together as a whole. For example, 100% together. The property to passes to the survivor on death.
- Tenants in Common is when the owners hold different percentages of the property. For example, 50% each. On death, the property passes under the deceased’s will or the intestacy rules.
When you buy a property with someone else, it’s possible that the costs of the purchase, the mortgage, stamp duty or other related fees may not be equal. One of you might be putting more towards the deposit, or one of you might be paying more towards the mortgage repayments. Whether you are buying a property as Tenants in Common or Joint Tenants, a Declaration of Trust allows you to set out how much money each person is putting in and how much money each person should receive when the property is sold, or when one person is bought out by the other.
When should you get a Declaration of Trust?
The Declaration of Trust agreement should generally be in place in time for the purchase completion date of your property. This way, it can be dated to that day as part of the general paperwork for the house sale. A Declaration of Trust can be arranged after the sale of a property; however, in this case, parties cannot be held to signing the agreement, and could perhaps refuse entirely to do so, depending on whether or not they are happy with the terms of the agreement.
We would all hope that if we were purchasing a property with a partner, friend or family member, we could trust the other party implicitly to act fairly in all dealings and not go back on their word if they had verbally agreed to terms without signing a Declaration of Trust. However, we know that that is not always the case. In our experience, it is always a good idea to get the legalities of any arrangement organised and officially agreed upon in signed writing before moving forward. Set out the terms of the agreement, sign in advance, and date to when the completion of sale goes through.
What can a Declaration of Trust include?
It can include:
- The amount each person contributes to the deposit, and how much will be repaid. For example, you may wish to state that each owner gets their initial deposit back and the remaining equity is split equally.
- What percentage of the property each person will own, and how the money will be split should the property be sold;
- How much each owner will contribute to mortgage payments. However, the Lender will still see payments as joint and several so if there are two people named on the mortgage, they will both be liable;
- How each person will contribute towards legal fees, stamp duty and utility bills;
- A calculation of the share a person owns in the property depending on the amount each person has paid towards the mortgage or towards renovations and improvements.
How to make the required calculations within a Declaration of Trust
Ensuring you include all the details mentioned above means that in the event that the Declaration of Trust needs to be relied on as parties have decided to sell their asset, the process will be easy and run smoothly.
A fair way to make the calculations is by using percentages of how much each party will own and be owed, given their initial deposit, agreed-upon mortgage payments, and any investment they may contribute towards renovations of the property. Using percentages means that any investment amounts will reflect any fluctuations in the market and leave parties with their fair share. For example, agreeing that a deposit amount contributed from one party will be retuned in full may mean the remaining party may miss out if house prices have dropped.
What happens to your Declaration of Trust if you get married?
If you are a cohabiting couple with a Declaration of Trust, then should you decide to get married at some point in the future, the Declaration of Trust will no longer legally stand to inform parties of their agreed shares of assets in the event of a sale.
If the marriage breaks down and a dispute over the distribution of assets in the subsequent divorce reaches the courts, then the Declaration of Trust may be reviewed as additional information by the courts to offer background,
How much does a Declaration of Trust cost?
As with any legal documentation, the specific details, which exhibit variation between each individual situation, will have an impact on the cost. The more complex a legal document has to be, the higher the cost incurred. As ever, we strive to be as open and transparent as we can regarding legal costings at all times, setting out details in initial discussions and any subsequent meetings, to ensure that there are no hidden surprises. Please do get in touch with us to find out more about the estimated costings for a case you have in mind, if you would like to put a Declaration of Trust in place.
What is the difference between a Trust and a Declaration of Trust?
A trust is any legally binding arrangement for the management of assets by named persons (trustees) on behalf of a named beneficiary. A Trust Deed is the name given to the legal document that specifies the terms of any trust. A Declaration of Trust is a type of Trust Deed that specifies the terms of ownership of a particular asset such as a property. A Declaration of Trust will break down how each party holds shares within that asset, either for themselves or for others, and any ongoing contributions that are to be made – for example, any ongoing mortgage payments. This means that when the asset comes to be sold, a breakdown of what each party is legally entitled to is easy and simple to work out.