Declaration of Trust – everything you need to know

What is a Declaration of Trust?

A Declaration of Trust is a legal document that is drawn up when people buy property together and they wish to reflect the legal arrangements under which they will own, fund and sell property, and, most specifically, how the sale proceeds would be divided.

It is also frequently used to confirm the extent of each person’s equitable or beneficial interests in a property, meaning a person’s share in a property that may not be reflected in the legal ownership of the same. It is a document that should be tailored to each parties’ needs and desires and therefore, needs to be carefully constructed to cover all relevant points.

Sometimes referred to as a Deed of Trust, a Declaration of Trust of often used to record trustee’s interests in a settlement where the trust assets is an interest in the property concerned.

When is a Declaration of Trust most frequently required?

A Declaration of Trust can be used in a number of circumstances, for example:

  • When people who are unmarried buy a property together; it can be used to clearly set out their respective contributions so that in the event of the relationship ending or the property being sold for some other reason their entitlement to a share of the equity (value of the property less the mortgage debt) is defined.
  • When parents contribute towards their child’s home and wish to reflect and protect their contributions and set out in what circumstances they would be repaid.
  • When a person’s name is not on the Property Register (also known as the legal title) or if they are not a party to the mortgage. For example, where they have poor credit rating or where they move into a home that is already owned by the other party, but they still make financial contributions towards the property.

Overall, Declarations of Trust are flexible documents that can be used to fit each families’ and/or couples’ circumstances.

Why you should have a Declaration of Trust

A Declaration of Trust is particularly key in the context of unmarried couples where the relationship is not recognised in law. The term “common law spouse” is a myth, as unmarried couples do not acquire the same legal rights as a married spouse overtime regardless of the duration of their relationship or a result of having children together.

There can be circumstances in which one person in an unmarried couple contributes significantly more than the other to purchase a property. In these circumstances, on the breakdown of the relationship, couples can be forced into a minefield of legal issues leading to complex litigation should one party wish to address their ownership of the property.

A Declaration of Trust can circumvent these issues by providing a clear structure for the division of the sale proceeds (known as the equity) at the outset and can ensure that unequal contributions are protected in the event of a sale of the property as well as enabling the couple to agree on how non-financial contributions being recognised and accounted for.

Furthermore, a Declaration of Trust can be used to avoid disagreements as to how much each owner will pay towards the costs associated with the property, what will happen if one person wants to sell their share of the property and how any mortgage on the property will be paid off.

Making a Declaration of Trust requires each party to be clear about their expectations in co-owning a property and the arrangements for running the property. This may be a difficult conversation in the first instance, but it will avoid uncertainty and disagreements in the future, especially in the event of a breakdown of a relationship. Further, as the agreement is already set out, it can prevent the need to attend at court to decide upon the financial consequences arising out of parties’ ownership of the property which will save time, costs and stress.

If you’re looking to have a Declaration of Trust produced, or an issue or dispute has arisen in relation to an existing one, please contact our skilled and experienced team of lawyers at Moore Barlow.

What should be included in the Declaration of Trust

Each Declaration of Trust will be different with varying terms, depending on the parties needs and wants. However, the following should be contained in all Declarations of Trust:

  • The amount each party has contributed to the deposit for the purchase of the property;
  • The amount contributed to the initial acquisition price;
  • The amount each party will contribute to the mortgage repayments and other outgoings;
  • The percentage of the property each party will own;
  • The change in percentages if one party contributes more towards major changes, such as refurbishments;
  • What percentage each party will receive from the sale of the property;
  • How the property will be valued before any sale;
  • The process if one party wanted to realise their share when the other didn’t; and
  • When the property should be sold and in what circumstances.

At what stage should I obtain a Declaration of Trust?

A Declaration of Trust is usually created at the point of purchase of a property, but it is possible to create one at a later stage, for example when parties are already cohabitating and wish to define their equitable shares in a property or financial arrangements for the future.

Is a Declarations of Trust legally binding?

A Declaration of Trust is a legally binding document addressing the legal and the equitable ownership of a property.

If the Declaration of Trust is going to provide for various stipulations beyond how the title to the property will be held, it will need to be prepared and executed as a deed. Deeds are formal legal documents with precise wording that need to be executed in a particular way which our lawyers can assist with.

All parties will also need to demonstrate they had a full understanding of the agreement and enter into it of their own free will and the document must be signed by all parties and witnessed.

Does a Declaration of Trust affect a mortgage?

A Declaration of Trust can affect the mortgage on a property. In these cases, the consent of the lender will need to be sought before the Declaration of Trust can be approved and registered with the Land Registry. Our lawyers will be able to determine if a Declaration of Trust affects any mortgage and if it does, they will be able to contact the lender to obtain consent to the terms.

Can a Declaration of Trust be overturned?

A Declaration of Trust is normally created to safeguard parties’ intentions regarding their finances in the future, and the aim of the same is to avoid disputes at the end of the period of joint ownership of a property. Therefore, it is not easy to change or seek to overturn the Declaration of Trust.

Indeed, the benefit of entering into a Declaration of Trust is to provide that safeguard by declaring the parties’ positions at the point of the purchase of a property and to undermine the possibility of a challenge upon the terms at a later stage.

However, if all parties want to change the terms of the Declaration of Trust, then it is possible for it to be amended to reflect any new arrangements. It should once again be set out in writing and signed as a deed. It is necessary for each party to have or be advised to seek their own independent legal advice so to reduce the chances of the Court overturning the document.

If an issue or dispute has arisen surrounding an existing Declaration of Trust and you need specific legal advice, please contact our dispute resolution team today.

What happens if parties get married?

In the event that an unmarried couple with a Declaration of Trust marries, the stipulations in the Declaration of Trust will not be binding on the court but they could be taken into consideration if the marriage breaks down. The needs of the respective parties will be of the first consideration of the court and a court can go behind the Declaration of Trust, if required, to satisfy those needs.

What is the difference between a Declaration of Trust and a Trust Deed?

Trust Deeds are a general legal document that set out the terms of a trust. A Declaration of Trust is a more precise type of Trust Deed, documenting how parties hold the equitable shares in a particular asset on trust, for example property.

How Moore Barlow can help

If you’re looking to have a Declaration of Trust produced, or an issue or dispute has arisen in relation to an existing one, please contact our skilled and experienced team of lawyers at Moore Barlow.

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