What does a declaration of trust do?
17 December 2019
A Declaration of Trust, also known as a Deed of Trust, is a legally-binding document recording the financial arrangements between joint property owners, and/or anyone else with a financial interest in the property.
A Declaration of Trust is made at the time of buying the property. Once this document is in place, both people will know exactly where they stand if the property is sold or one person wants to be bought out in the future
The purpose of a Declaration of Trust is to remove any uncertainty as to what will happen to each person's financial investment in the property. Setting out these financial arrangements at the outset provides clarity, hopefully reducing any disagreements in the future.
Because a Declaration of Trust (Deed of Trust) is a legally binding agreement, those involved must honour the terms.
Who should get a declaration of trust?
A Declaration of Trust is useful for anyone who is buying a property with someone else as joint owners, or anyone who is buying a property with financial help from someone else.
Buying property as joint owners
When you buy a property with someone else, it’s possible that you won’t be dividing the costs 50/50. One of you might be putting more towards the deposit, or one of you might be paying more towards the mortgage repayments.
Whether you're buying a property as Tenants in Common or Joint Tenants, a Declaration of Trust allows you to set out what each person is contributing and what each person should receive if the property is sold or one person is bought out by the other.Buying Property with the Help of Someone Else
Buying property with the help of someone Else
These days it's more common for people to receive financial help from family members and friends when buying a property. In most cases the people providing financial assistance will want their money back at some point in the future.
A Declaration of Trust, or Deed of Trust, can specify how much money should be repaid, and in what circumstances this money should be repaid. This will protect that person's investment, helping to ensure it isn't lost.
What can a declaration of trust include?
What’s included in a Declaration of Trust will depend on your individual circumstances. It can include:
- How much each person contributes to the deposit, and how much will be repaid to them
- What percentage of the property each person will own, and how the money will be split if the property is sold
- How much each person will pay towards the mortgage, and how the mortgage will ultimately be paid off
So, for example, say you and your partner are buying a property together. You're both contributing different amounts to the deposit, but the mortgage repayments and other ongoing costs will be divided equally between you. In this situation, you might want a Declaration of Trust that says if you split you'll both get your deposits back and 50% of the equity.
Or say you're buying a property with your partner and your parents lent you £25,000 for the deposit. You might want a Declaration of Trust that says if you split up, your parents will get their £25,000 back before the equity is divided.
It’s up to you what you want to include in your Declaration of Trust, but ultimately it’s there to help protect each person’s financial interest.
Our Family Law Solicitors can advise you on what to include in a Declaration of Trust, ensuring everyone’s investment is protected.