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What is a Declaration of Trust and why might I need one?

Posted on August 11th 2022

With the recent increase in property prices, it is not surprising that more and more people are finding it difficult to purchase a property and ‘get their foot on the property ladder’. Individuals and couples seem to be exploring the different methods in which they can purchase a house whether it be by seeking financial help from parents, relatives or friends or by pooling their money together to purchase a property jointly.

When purchasing a property through the means mentioned above, a ‘Declaration of Trust’ is an option commonly considered by the purchasers to specify the amount/percentage each owner is entitled to and to set out what would happen to the home if it was to be sold.

We therefore believe it is important for you to understand what a Declaration of Trust is, how it works and whether it could be a suitable option for you. As such, we have listed below some frequently asked questions and the subsequent answers to them.

What is a Declaration of Trust?

A Declaration of Trust is a legal document which sets out the various terms on which a property is to be held by the purchasers. Such a document should be drawn up and signed before the property is purchased so as to make clear the intentions of the purchasers from the outset. The Declaration of Trust will record the financial arrangements of each party who has an interest in the property, setting out what share of the property they each own, the initial contributions made and what should happen in the event that the owners agree to sell or buy out another.

What does a Declaration of Trust do?

A Declaration of Trust helps protect the interests of every person involved in the purchase of a property and is used as an aid to understand what each owner is entitled to should the property need to be sold. Problems can arise where there is no Declaration of Trust in place as it is more difficult to determine who should receive the sale proceeds and in what percentage. Signing this important document therefore helps clear up any ambiguity in the future.

Why would I need a Declaration of Trust

There are many reasons as to why it would be beneficial for people purchasing a home to draw up a Declaration of Trust.

  1. If you are purchasing a property jointly and are both contributing different amounts to the purchase, it would be advisable that you consider entering into a Declaration of Trust. The Declaration of Trust will allow you to set out each person’s initial contributions and specify what should happen to the proceeds of sale.
  2. As touched on above, many people are helped by their parents when purchasing a home with a partner. As such, it is likely that you will want to make sure that such gifted deposit is returned to them in the event of a relationship breakdown. This aim can be achieved through a Declaration of Trust.
  3. Reduce the risk of disagreements at a later date. When purchasing a home with another person, your names will be registered at the Land Registry as the proprietors. However, the Land Registry deeds do not always record what proportions each of you contributed and so a Declaration of Trust will remove any ambiguity.

What should be included?

Each person’s circumstances are different and so a Declaration of Trust can, to a certain extent, be tailored to suit your specific requirements. Our solicitors will discuss with you the circumstances of your purchase and advise you on the ways in which a Declaration of Trust can assist in achieving your aims and protecting your interests. With that being said, a declaration of trust should generally include the following standard information;

  • The address of the property being purchased and the names of those purchasing.
  • How much each person has contributed to the initial deposit.
  • If applicable, the details of any mortgage, how the mortgage will be paid, who will pay towards the mortgage and how much each person will pay.
  • Who will be contributing to the other outgoings of the property and how much they will be contributing.
  • The percentage share of the property that each purchaser will own.
  • An agreed value of the property.
  • How the sale proceeds should be split.

In addition to the above, it is also possible to include a schedule which allows each party to list any contributions they have made to the property after they have purchased it. For example, this could include payments towards furniture, renovation works or early mortgage repayments.

Are Declarations of Trust legally binding?

Whilst there are limitations and other factors to consider the answer to this question is, yes. A Declaration of Trust is a legally binding contract which cannot be changed unless both parties to the contract agree. If the agreement of both parties is obtained, then amendments or additions to the contract can be made as set out above.

Please note however they do have their limitations and this is something we are also able to advise you on.

Do you need more information?

If you think that a Declaration of Trust is something that you wish to discuss with one of our solicitors, or if you have any queries related to this article, then please feel free to contact us on 01244 312306. We would be more than happy to answer any queries you may have.

We offer to all clients a free initial consultation with one of our professional and friendly solicitors whether it be over the phone, by video call or face to face at our office.

Call and speak to a member of our team on 01244 312306