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Declaration Of Trust For Property: All You Need To Know!

declaration of trustIf you are considering a Declaration of Trust, it is important to understand what it is and how it can impact your legal and financial situation. This comprehensive guide, prepared by one of our experienced Private Client Solicitors, will provide you with all the information you need, from the purpose of a declaration of trust to its legal implications.

Eye-watering interest rates and inflated property prices combined with the current economic crisis has resulted in individuals and couples increasingly looking for alternative arrangements for buying a house. This might include clubbing together with friends or a partner to buy a property as joint owners, or seeking financial help from parents, relatives, or other individuals who are in a position to offer their support.

A Declaration of Trust (also referred to as a Deed of Trust) is often considered when multiple people have a stake in a property and there are no existing legal arrangements in place between them to determine what each person is entitled to and what should happen if the property is sold.

If you are considering setting up a Declaration of Trust please get in touch and book a free initial consultation with one of our experienced Private Client solicitors. Simply call 0800 086 2929, email info@elitelawsolicitors.co.uk or complete our Free Online Enquiry Form.

As well as office meetings, we offer remote meetings to clients via telephone and video conferencing software such as Zoom and Microsoft Teams so can assist you wherever you are based.

What is a Declaration of Trust?

A Declaration of Trust is a legally binding document made at the time of buying a property. It records the financial arrangements of everyone who has an interest in the property, detailing what share of the property they own and what should happen in various eventualities, such as if all owners agree to sell the property or if one owner wishes to buy out another.

What does a Declaration of Trust do?

A Declaration of Trust protects everyone’s interests in a property, ensuring each party gets what they are entitled to by their initial investment when it comes time to sell the property or sell a share of it. If there is no Declaration of Trust in place, it becomes more difficult to tell who should be repaid and how much they are entitled to when the property is sold.

There are many reasons to sign a Declaration of Trust and some of the most common have been outlined below:

When buying property as an unmarried couple

Despite the pervasive myth that couples who are cohabiting are covered by something called ‘common law marriage’, in actual fact couples who are not married or in a civil partnership do not have any of the legal protections afforded those whose relationship has been recognised by law.

This means there are no guarantees that each party will be treated fairly should the relationship break down and their co-owned property need to be dealt with. A Declaration of Trust can prevent uncertainty by specifying who will be entitled to what should the relationship end.

Protecting someone whose name is not on the mortgage

There are many reasons why someone might have an interest in a property and contribute payments towards it but not have their name on the mortgage.

Whether because they have poor credit or other debts that make them ineligible for another mortgage, or because they moved into a house already owned by another party, a Declaration of Trust will record the specific arrangement and ensure that the right parties retain their beneficial interest, if appropriate.

To reduce the risk posed by disagreements

A house is a significant investment, and as such all persons who have a stake in it should have their money protected.

While the Land Registry records ownership, it doesn’t take into account the specific proportions each party has contributed to a property, meaning that when it comes to selling, some stakeholders could find themselves out of pocket without a legal document recording their contributions.

Putting a Declaration of Trust in place protects against any disagreements and misunderstandings that may arise later down the line.

What should be included in a Declaration of Trust?

declaration of trustEach Declaration of Trust is different, and any good solicitor will tailor the deed to reflect the fact that no two financial arrangements are ever exactly the same. That being said, there are some details that all documents should contain:

  • The amount each party has contributed to the deposit on the property
  • The amount each party will contribute to the mortgage repayments and other outgoings
  • The percentage of the property each party will ultimately own
  • How much each party will get from the sale of the property
  • How the property will be valued before it is put up for sale

Beyond these key pieces of information, various clauses can be added to account for different eventualities that may occur.

In addition, a number of arrangements can be chosen from for how equitable interest will be treated: if one party has invested more in the deposit, for example, they could receive that larger sum back alongside their agreed share of profits upon sale; or if one party is contributing less to the mortgage repayments than the other, then the share ration could be recalculated each year to reflect the amount each party has invested as this sum changes.

How long does a Declaration of Trust last?

The lifespan of a declaration of trust typically aligns with the ownership of the property. It remains effective as long as the specified conditions are met and until a specified event, like the sale of the property or a change in the owners’ circumstances, occurs.

Parties can agree to modify or terminate the declaration of trust. This is often done through a deed of variation. However, changes could have legal and tax implications. If one of the property owners dies, the terms of the declaration of trust will determine what happens to their share of the property. This could be in line with their will or the rules of intestacy if there is no Will.

Is a Declaration of Trust legally binding?

A Declaration of Trust is a legally binding agreement, provided that it has been prepared correctly.

It should be noted that in some cases a distinction is made between a Declaration of Trust and a Deed of Trust, where the former is considered to be a more informal document that only records how shares in a property are split – not any further clauses pertaining to legal ownership or provisions for sale.

In many cases, however, these terms are used interchangeably, because in most cases a Declaration of Trust does contain more detail than just the beneficial interest split. In this case, the document needs to meet the stricter criteria of a deed in order to be executed.

As with any legal document, the Declaration of Trust must meet various criteria to ensure it will be recognised by law: it must be prepared as a deed (a formal legal document, usually drawn up by a legal professional), all parties concerned must be able to demonstrate that they entered into the agreement willingly and with full knowledge of what it entailed, and it must be signed by all concerned parties, and the signing witnessed.

Can a Declaration of Trust be overturned?

The point of a Declaration of Trust is to remove any ambiguity around what might happen to any interested party’s investment in a property in the future. It is designed to safeguard against misunderstandings, disagreements, and people changing their minds, and as such it is not easily changed.

That being said, circumstances do change, and if all parties who signed the original document give their consent then the Declaration of Trust can be amended or rewritten.

For minor changes, a deed of variation can be appended to the original document to add additional clauses. Provided the new deed is explicit in which parts of the original document it is replacing, this can be a simple way to update small details contained in the document.

For larger changes, it may be easier to have the Declaration of Trust rewritten in its entirety. Reasons to rewrite a Declaration of Trust could include the value of the property in question changing significantly (for example due to renovation work or the addition of an extension), or a change in the persons with a stake in the property (for example if one person is bought out). As soon as the new Declaration of Trust is filed, it replaces and invalidates any older versions.

A correctly prepared Declaration of Trust is designed to be unambiguous and comprehensive, which makes it intentionally difficult to challenge the deed in court. Only where fraud or misrepresentation can be proved to have occurred will a court consider disregarding a Declaration of Trust.

The tax implications of getting a Declaration of Trust

Obtaining a declaration of trust for property requires a little bit of due diligence to ensure that you understand how it works. Tax implications are a major consideration for these declarations, as they can have a direct impact on the tax you pay.

Stamp Duty Land Tax (SDLT)

In some cases, changing the shares of ownership in a property can trigger SDLT. This tax is applicable if there is a transfer of a share in a property in exchange for something of economic value, such as taking over a share of a mortgage.

Capital Gains Tax (CGT)

When you transfer a property or a share of it into a trust, it may be subject to Capital Gains Tax. If the property has increased in value, the person transferring the ownership might need to pay CGT on the gain.

Inheritance Tax

A declaration of trust can influence inheritance tax liabilities, particularly if one partner dies and their share in the property is passed on to someone else.

Income Tax

If the property generates income, such as rental income, the way this income is taxed can be affected by the declaration of trust.

Does a Declaration of Trust affect a mortgage?

declaration of trustNot every Declaration of Trust will affect the mortgage on a property, but where it does the parties drawing up the deed will need to obtain the consent of the lender before the document can be filed.

Usually, a solicitor will review the document to determine whether it will affect the mortgage lender’s security and will contact the lender to obtain consent if necessary.

The primary concern of any mortgage lender is that they will be repaid, either through regular mortgage payments, or upon the sale, transfer, or repossession of the property.

If the Declaration of Trust includes any terms that might prevent the lender from recouping their money, then they will need to provide their consent. For example, sometimes a Declaration of Trust can be used to grant someone the legal right to live in a property without them being named on the mortgage. If the lender later tried to repossess the home, this person could block the lender from doing so as they would not be bound by the mortgage terms.

In most cases, the Declaration of Trust should not affect the mortgage lender’s security, in which case there would be no need to contact them before filing the deed. However, it is always worth confirming with the solicitor involved in drawing up the deed that the lender’s consent will definitely not be needed.

Considerations for Joint Tenants

When purchasing a property as joint tenants, it is assumed that each party owns an equal share in the property. If one joint tenant passes away, by default the other tenant will inherit their share. The share cannot be passed on in a will.

Considerations for Tenants in Common

Unlike joint tenants, tenants in common are considered to own their specific share of a property. This ownership will be recorded with the Land Registry and can be passed on in a will.

If one owner passes away with no will, the share of the property will be subjected to the rules of intestacy, meaning the share will not necessarily be passed to the other owner of the property, but more likely to relatives of the deceased.

In this instance, a Declaration of Trust can be useful for recording the exact shares of a property and how each party’s contributions are broken down.

In addition, if the tenants in common are an unmarried couple, a Declaration of Trust can work much like a cohabitation agreement to prevent any complexity or ambiguity regarding what happens to the property should the couple’s relationship break down and they choose to separate.

Should cohabiting couples consider a Declaration of Trust for property?

If you are a cohabiting couple, then a declaration of trust for property could be a useful tool for your circumstances.

Cohabiting couples, unlike married ones, do not automatically have legal rights to each other’s property in the event of a breakup or death. A declaration of trust, therefore, becomes a crucial tool in safeguarding their individual interests in a shared property.

Alongside a declaration of trust, cohabiting couples may also want to consider a Cohabitation Agreement. This agreement covers broader aspects of their relationship, such as financial arrangements and responsibilities, providing a comprehensive framework for their partnership outside of marriage.

What happens if you get married?

declaration of trustIf a cohabiting couple with a Declaration of Trust gets married, the deed will be superseded by the Matrimonial Causes Act 1973.

Among other things, this act dictates how a court can act in settling a divorce, including what powers the court has to determine how property owned by the married couple is managed.

Should a married couple split and the divorce reach court, the court will still consider the Declaration of Trust as an indicator of the couple’s intentions. However, they have no obligation to honour the terms set out in the deed.

For greater certainty and to make legally binding arrangements contrary to the default terms set out in the Matrimonial Causes Act, a married couple should consider replacing their Declaration of Trust with a prenuptial agreement or postnuptial agreement at their earliest convenience.

If you require legal advice or assistance relating to any of these legal documents, please book a free, no obligation initial consultation by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.

Can I write my own Declaration of Trust?

As with most legal documents, a quick search of the internet will bring up many websites selling pre-prepared templates for those looking to write their own Declaration of Trust document without involving a solicitor, and thus incurring the fees of a legal professional.

However, a Declaration of Trust is supposed to be a unique document detailing the arrangements between co-owners of a property and other interested parties. The deed’s value is in its bespoke nature, and following a template runs the risk of missing off important details specific to the particular arrangement in question.

Moreover, if the Declaration of Trust includes clauses and intentions regarding how the property is held, how it will be sold, and what actions are restricted, or if it transfers the legal title of the property, then it must be prepared and executed as a deed.

These formal legal documents require precise wording and need to be signed and witnessed before being executed. An experienced Declaration of Trust solicitor can ensure that the document is accurate and legally robust.

Involving experienced Declaration of Trust solicitors who are able to give advice on the arrangements proposed in the Declaration of Trust can also be a prudent move, and one that could potentially save a sum many times that of the legal fees. For example, a solicitor can advise whether the Declaration of Trust will infringe on the rights of any lender with a stake in the property and can contact the lender for their consent if required.

How much does a Declaration of Trust cost?

Solicitors’ fees vary depending on a variety of factors including the location of the firm and the experience of the specific solicitor. The cost of a Declaration of Trust will be from £600 plus VAT and will depend on the complexity of the document, the number of clauses it incorporates and any additional consultations required during the drafting process. Following an initial meeting the fixed fee will be confirmed.

While an upfront charge approaching four figures may seem like just another inconvenient cost to be avoided while buying a property, a Declaration of Trust can potentially save property owners many times that amount should things go wrong down the line.

From acrimonious break-ups to simple misunderstandings, there are many ways in which co-ownership of a property can go badly wrong and leave one party seriously out of pocket. Putting a legally binding document in place to prevent this is simply common sense when dealing with what for many people will be the single biggest investment they make in their lives.

If you are considering putting a Declaration in Trust in place, please book a free, no obligation initial consultation with one of our experienced Declaration of Trust solicitors by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.

What happens if only one of our names is on the mortgage?

In most cases if only one name is on the mortgage the property will have to be held in that name.  Where a person who is not on the mortgage is to have a share in a property a Declaration of Trust will set out what they are contributing and what their share is.

Is a Declaration of Trust recorded against the property at the Land Registry?

A Declaration of Trust is not something that can be recorded against a property at the Land Registry. It is sometimes possible to record a “restriction” against the property title. This restricts the legal owners, when they want to sell the property, from completing a sale without providing the Land Registry with a legal certificate to confirm that the terms of the Declaration of Trust have been complied with.

Whilst entering a restriction against the title gives added protection to the person who benefits under the Declaration of Trust, it can cause problems if the property is mortgaged, particularly if the lender has required the non-owner occupier to sign a document waiving any rights they may have in the property. The lender’s consent is nearly always required prior to the parties completing a Declaration of Trust.

The existence of the Declaration of Trust may also cause issues further down the line, if the owners wish to remortgage the property. Even though the parties obtained the consent of the original mortgage lenders when the Declaration of Trust was first entered into, there is no guarantee that a lender on any future remortgage will also provide that consent.

At what stage should I get a Declaration of Trust?

Ideally a Declaration of Trust will be prepared ahead of a completion of purchase, agreed and signed by all of the parties and then dated on completion.  It is possible to put a Declaration of Trust in place after a purchase completes although it is advisable to have it in place beforehand since none of the parties can be bound to sign it following completion.

Where the parties who have shares in the property want to change their shares at a later date, for example to change the share of rental income they each receive or to reflect contributions made since the property was purchased, a Declaration of Trust can be drawn up to set out what is agreed.

It is possible to have further Declarations of Trust as circumstances change.

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

 A Trust Deed is a general term for a document which contains the terms of a Trust.  A Declaration of Trust is a type of Trust Deed and is a document by which the person or people who own an asset declare that they hold it on Trust in specified shares for themselves and or other parties.

How is a Declaration of Trust executed?

Following a meeting, a draft Declaration of Trust is prepared and sent to you to review.  Once it is finalised a final copy is prepared and signed in the presence of witness.   If restrictions are to be entered at the Land Registry we then submit the required Land Registry application on your behalf.

How Elite Law Solicitors can help

At Elite Law Solicitors we can expertly guide you through the process of setting up a Declaration of Trust and will ensure that it is tailored to reflect your investment in the property.

We can incorporate the terms for buying out your co-owner’s share, including stipulating how the share(s) should be valued if this cannot be agreed.

Meg Wilton is a Chartered Legal Executive and has many years of experience in advising and assisting clients in relation to setting up Declarations of Trust.

Meg can provide specialist legal advice in relation to a Declaration of Trust and would be happy to offer advice and guidance on your specific situation.

As well as office meetings, Meg offers remote meetings to clients via telephone and video conferencing software so can assist you wherever you are based.

Book a FREE initial consultation

If you are considering setting up a Declaration of Trust or have any queries relating to any of the issues discussed in this article, please book a free, no obligation initial consultation with one of our experienced Private Client lawyers. Simply call 0800 086 2929, email info@elitelawsolicitors.co.uk or complete our Free Online Enquiry Form.

The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified private client solicitors such as those within our firm.

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