Declaration of Trust

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Declaration of Trust Solicitors

People who purchase a property together, or who help a relative to buy a home with a lump sum, need to legally record what contribution has been made by each person. This is referred to as a Declaration of Trust or Deed of Trust. 

If you want legal advice on how to draw up a Declaration of Trust, or are thinking of purchasing a home with a partner and want legal advice on how best to protect your investment, the experts at JMW Solicitors can help. 

For many years we have guided couples through this complicated area of the law, and we can help to ensure that buying a property together is a stress-free and happy process. To speak to one of our specialist solicitors, call 0345 872 6666 or complete our online enquiry form.

How JMW Can Help 

At JMW, our solicitors have vast experience helping people draw up a Declaration of Trust that suits each party and both fully and legally outlines all the necessary information that will protect their investment and help to avoid disputes.

We also aim to provide you with legal advice that is easy to understand and free of legal jargon, and will guide you through the process in a hassle-free manner.

What is a Declaration of Trust? 

A Declaration of Trust - also known as a Deed of Trust - can be used when two or more unmarried parties choose to move in together or decide to live in a property already owned by one of the prospective tenants. 

It outlines the proportion of a property that is owned by each tenant, how it was funded and how the proceeds of a sale will be dealt with in the future. It can also be used to protect the investment of a third party (such as a parent) who is not in the title but has contributed to the purchase of the home. 

A Declaration of Trust is particularly useful for avoiding disputes relating to ownership of the property if a couple later splits up.

What Does a Declaration of Trust Do?

A Declaration of Trust serves to safeguard all parties' interests in a property, confirming that each person receives their rightful portion based on their initial investment when the property or a portion of it is sold. Without a Declaration of Trust, it becomes complicated to determine who should be compensated and how much they should receive upon selling the property.

There are numerous reasons for signing a Declaration of Trust. Some common ones are:

Purchasing property as an unmarried couple: contrary to the widely held belief in 'common law marriage' protecting cohabiting couples, the truth is that couples not bound by marriage or civil partnership lack the legal protections given to those in legally recognised relationships. This lack of protection can lead to unfair treatment when dealing with a jointly-owned property in case of a relationship breakdown. A Declaration of Trust can eliminate this uncertainty by clearly defining what each party is entitled to if the relationship dissolves.

Safeguarding an individual not listed on the mortgage: various circumstances may lead to someone having a stake in a property and making payments towards it without their name being on the mortgage. Such scenarios could arise due to poor credit, existing debts rendering them unsuitable for another mortgage, or moving into a home already owned by someone else. A Declaration of Trust documents this particular arrangement and ensures that the rightful parties maintain their beneficial interest if it's relevant.

Minimising conflict-related risks: a house represents a significant investment, and everyone with a stake in it deserves to have their funds secure. The Land Registry records ownership but does not reflect the specific percentages each party has contributed to a property. This discrepancy can result in stakeholders potentially losing out when selling without a legal document evidencing their contributions. Implementing a Declaration of Trust helps prevent future disagreements and misunderstandings.

What should a Declaration of Trust include? 

A Declaration of Trust should consider the following: 

  • How much of the mortgage is paid by each party
  • How utilities and other outgoings will be paid for
  • Provisions for children
  • A method of valuing the property
  • Arrangements in the event of buying each other out

The document should be prepared and signed at the same time as the purchase of a property and (ideally) before any disagreements have taken place. It is legally binding and, should a dispute arise, can be produced by legal owner to demonstrate the original agreement that was in place when the property was being purchased.

As long as all parties are in agreement, the document can be amended, or even waived completely.

When should I establish a Declaration of Trust?

The ideal scenario is to prepare a Declaration of Trust prior to completing a property purchase, have it agreed upon and signed by all parties involved, and then officially date it upon completion. It is also possible to institute a Declaration of Trust after the completion of a purchase, but it is recommended to have it set up beforehand, as no party can be compelled to sign it post-completion.

If the parties holding shares in the property wish to alter their shares at a later stage—for example, to adjust the share of rental income each party receives or to account for contributions made since the property was bought—a Declaration of Trust can be drafted to specify the agreed terms.

Further Declarations of Trust can be executed as circumstances evolve.

What distinguishes a Declaration of Trust from a Trust Deed?

A Trust Deed is a broad term for a document that stipulates the terms of a Trust. A Declaration of Trust, on the other hand, is a subtype of a Trust Deed and is a document wherein the person or people owning an asset affirm that they hold it on Trust in designated shares for themselves and/or other parties.

Frequently Asked Questions about Declaration of Trusts

How is a Declaration of Trust Executed?

Executing the deed requires it to be signed, dated, attested by a witness and then ‘delivered’, which simply means indicating that you intend to be bound by the deed. 

Why might I choose to register my Declaration of Trust as a restriction on the land registry? 

Registering a Declaration of Trust as a restriction on the land registry serves to safeguard the interests of all parties involved in the Declaration of Trust.

How is a Declaration of Trust enacted?

After a meeting with your solicitor, a draft Declaration of Trust is composed and forwarded to you for review. Once finalised, a final copy is drawn up and signed in the presence of a witness. If restrictions are to be recorded at the Land Registry, we will then submit the necessary Land Registry application on your behalf.

What Are the Different Ways a Property Can Be Owned Jointly?

There are two different ways in which you can own a property jointly, as:

Joint tenants
Property held as joint tenants means each party owns an equal share of the property and one party has the equal, undivided right to keep or dispose of the property. This also means the property automatically goes to the other owners if you die, and that you cannot pass on ownership of the property in your will.

Tenants in common
Property held as tenants in common means that each tenant owns separate and distinct shares of the property. In this case the property will not automatically go to the other owners if you die, and you are able to pass on your share of the property in your will.

Is a Declaration of Trust Legally Binding?

A Declaration of Trust is a legally binding document as long as it is accurately prepared.

In some instances, there is a differentiation between a Declaration of Trust and a Deed of Trust. The former is often seen as a less formal document that simply outlines the division of the property ownership into shares, without including additional legal ownership clauses or sale provisions. However, these terms are frequently used interchangeably because a Declaration of Trust often includes more than just the division of beneficial interest. When this occurs, the document must fulfill the more rigorous requirements of a deed for execution.

Like any other legal agreement or document, a Declaration of Trust must satisfy several criteria to be legally recognised: it needs to be drafted as a deed (a formal legal document, usually created by a legal professional), all involved parties must prove that they willingly entered the agreement with full understanding of its implications, and all parties must sign it with witnesses present.

Is it Possible to Overturn a Declaration of Trust?

The objective of a Declaration of Trust is to eliminate any confusion about the future of each party's investment in a property. It is a legally binding document designed to safeguard against misunderstandings, disputes, and changes of mind, so it is not easily altered.

However, situations can change, and with the unanimous consent of the original signatories, the Declaration of Trust can be amended or rewritten.

For small changes, a deed of variation can be added to the original document to incorporate extra clauses. As long as the new deed clearly states which portions of the original document it's replacing, this can be a straightforward method to update minor details.

For larger modifications, it might be simpler to completely rewrite the Declaration of Trust. Reasons for a rewrite could be a significant change in the property's value (perhaps due to renovations or extensions) or alterations in the stakeholders of the property (for instance, if one person is bought out). As soon as the new Declaration of Trust is filed, it nullifies any older versions.

A properly prepared Declaration of Trust is meant to be clear and thorough, making it intentionally challenging to dispute in court. A court will only consider ignoring a Declaration of Trust if fraud or misrepresentation can be proven.

Does a Declaration of Trust Affect a Mortgage?

A Declaration of Trust will not always impact a property's mortgage. However, if it does, the parties involved in drafting the deed must secure the lender's consent before the document is officially filed.

Typically, a lawyer will examine the document to ascertain if it will affect the mortgage lender's security. If it does, the lawyer will reach out to the lender to secure their consent.

The primary concern for any mortgage lender is ensuring they get repaid, whether it is through regular mortgage payments or via the sale, transfer, or repossession of the property.

If the Declaration of Trust encompasses any conditions that might hinder the lender's ability to recover their money, their consent will be necessary. For instance, a Declaration of Trust can sometimes be used to grant someone with the legal right to occupy a property without being named on the mortgage. If the lender later attempts to repossess the house, this individual could impede the lender's action, as they are not subject to the mortgage terms.

In most situations, the Declaration of Trust should not affect the mortgage lender's security, which means there is no need to communicate with them before filing the deed. Nonetheless, it is always prudent to verify with the solicitor preparing the deed that the lender's consent is indeed not required.

What Happens to Your Declaration of Trust if You Marry?

If a cohabiting couple who have a Declaration of Trust decides to marry, the Matrimonial Causes Act 1973 supersedes the deed.

This act, among other things, outlines the court's authority in settling a divorce, including how it can determine the handling of property owned by the married couple.

If a married couple separates and the divorce proceedings reach court, the Declaration of Trust deeds will be considered as a reflection of the couple's intentions. However, the court is not mandated to adhere to the conditions outlined in the deed.

For enhanced certainty and to establish legally enforceable agreements that differ from the default terms of the Matrimonial Causes Act, a married couple should think about substituting their Declaration of Trust with a prenuptial or postnuptial agreement as soon as possible.

Can I Draft My Own Declaration of Trust?

Similar to many legal documents, a quick internet search will reveal numerous websites selling pre-made templates for those looking to draft their own Declaration of Trust without soliciting a solicitor and consequently, avoiding the solicitor's fees.

However, a Declaration of Trust is intended to be a unique document detailing the financial arrangements between co-owners of a property and other interested parties. The deed's worth lies in its customised nature, and using a template risks omitting crucial details specific to the particular circumstances.

Furthermore, if the Declaration of Trust includes terms and plans regarding the way the property is held, its sale method, the restricted actions, or if it transfers the property's legal title, it must be created and executed as a deed.

Such formal legal documents require accurate wording and need to be signed and witnessed before execution. A solicitor can guarantee that the document is legally robust and accurate.

Engaging a solicitor who can provide advice on the arrangements proposed in the Declaration of Trust can also be a sensible step, potentially saving a sum considerably larger than the legal fees. For instance, a solicitor can advise whether the Declaration of Trust will infringe upon the rights of any lender with an interest in the property and can secure the lender's consent if needed.

Talk to Us 

Speak to JMW Solicitors today if you would like more information on Declarations of Trust. Call 0345 872 6666 or complete our online enquiry form.

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