Declarations of Trust: What are they and when should you be making them
Declarations of Trust are used to set out the interests of parties where property is held by more than one person. A Declaration of Trust can for example be entered into by couples purchasing their first home or when a partner moves into an existing home, or when embarking on a joint business venture. The parties are able to declare their interests in proportions agreed by them.
A Declaration of Trust for real property declares the beneficial ownership regardless of how the property is held at the HM Land Registry. It can allow for more specific details as to how the shares of the property are split between parties than the Land Registry Title register can, and can also allow an owner not protected by such registration to be protected. A Declaration of Trust however can be referred to on the Title register, signalling its existence to third parties, providing an extra layer of protection.
A Declaration of Trust should be considered whenever a property has been purchased in unequal shares by the parties. For example, if Person A has contributed 75% of the asking price on a property, the parties may want to consider that Person A will get their higher contribution back before the division of the sale proceeds, or even receiving 75% of the total net proceeds, therefore taking into account any uplift in the value of the property. Similarly, if you are a parent and are about to help your child buy their first property with a partner or a friend, you may wish to enter into a Declaration of Trust to enable your contribution to revert to yourself, or to your child.
If your partner is moving into a property that you own yourself, a Declaration of Trust should also be considered. The Declaration of Trust would be able to regulate contributions to any existing mortgage and the general upkeep of the house. The Declaration of Trust will also evidence your entitlement to the sale proceeds, making reference to your contribution to the purchase of the property. Finally, the Declaration of Trust can stipulate where your share will pass upon your death, should you wish it to pass to your children or pass to your partner as your survivor.
It is also important to consider preparing a Declaration of Trust in the case of rental properties. Not only can a Declaration of Trust outline parties’ individual contributions and their shares of the sale proceeds, but the Declaration can also indicate individual responsibilities. For example, if a rented property becomes vacant for a time, who will be liable for the council tax and paying the utility bills.
A Declaration of Trust can be entered into at the time of purchase, or at some later date agreed by the parties. Unfortunately, the Declaration of Trust’s importance can very easily be overlooked until a disagreement occurs between the parties, or with third parties such as HM Revenue & Customs.
If you feel that a Declaration of Trust will be helpful in regards to your property, please contact Sophie Weavers, our Trusts Paralegal today on 0203 871 9252.