Put Your Faith in a Declaration of Trust

Posted By: on 7th February 2023 | Category: Trust and Trust Administration

Are you thinking about buying a property with someone else, whether they are your partner, friend, brother or sister, but have a larger amount to invest than they do?

It is becoming increasingly common for home buyers to get a boost onto the property ladder in the form of financial assistance. If you have received a financial contribution from a family member and are, therefore, able to contribute more towards a mortgage-free property than the person you are buying with, then you may want to protect your interest. Here, we look at how a Declaration of Trust can help with this.

What is a Declaration of Trust?

A Declaration of Trust is a special trust relating to land which is most commonly used where two or more people purchase a house or flat in unequal shares. A Declaration of Trust is a legally binding document that records each person’s financial contribution in a property and the proportions of the property they own. This seeks to ensure that when the property is sold each owner gets a fair portion based on what they have put into the property.

Why would I need to set up a Declaration of Trust?

Declarations of Trust are predominantly drawn up if couples are contributing different amounts towards the purchase of a property.

You need one if you want to try and ensure that you protect the investment you have made into a property.

Can I draw up a Declaration of Trust myself?

Yes, you can, however, you run the risk of the agreement not being legally binding and also it may omit important details. It is strongly recommended that you seek the advice of a Solicitor when creating such documents.

I would like to buy a property with my partner but want to safeguard my funds should the relationship breakdown in the future. Would a Declaration of Trust help me with this?

Yes, a Declaration of Trust can be used for this purpose as it is a legal document which records the financial contributions made towards the purchase of a property and how the equity (i.e. the value or net sale proceeds) should be shared.

Even if the property is purchased with a mortgage it is possible to prepare a Declaration of Trust which sets out what share of the property you each own and how the equity should be divided. This means that if your relationship breaks down, or one of you dies, there is a document in place which specifies what the respective shares in the property are.

If you are buying a property without a mortgage and receiving money from a friend or relative, then it is possible for that person to be included in the Declaration of Trust so that he or she can try and ensure that the money they have contributed is returned.

What if I am buying a property with a mortgage?

If you are buying with a mortgage, most lenders will only accept a financial contribution in the form of a gift from a close family member.  A Declaration of Trust may reflect the gift in favour of one person but the donor could not be included and could not claim an interest in the property under the Declaration of Trust.

What happens if there is no Declaration in place?

If there is no Declaration and the property is in joint names then the presumption is that you own it 50:50.

Does a Declaration of Trust guarantee that I will recover all of my financial contribution?

No, a Declaration of Trust will only apply to what’s left in the equity of the property after it has been sold. Depending on what agreement is reached you may not recover all or any of the money that you have contributed, for example if the value of the property has fallen or you are in negative equity with regard to your mortgage.

Do I need to have a Will in place before I set up a Declaration of Trust?

It is recommended. Your Will deals with the disposal of your assets on your death and your share of the property is an asset in your estate.  By writing a Will you can control how your estate is divided, otherwise the intestacy rules apply.

How much does a Declaration of Trust cost to set up?

Prices range from £750 + VAT to £1,000 + VAT for a simple arrangement.

What information is required to set up a Declaration of Trust?

The property details, any mortgage details, full names and addresses for the people wanting to create the Declaration of Trust, their contributions to the purchase price and the shares they would like to own the property in.

Who should I contact if I would like to set up a Declaration of Trust?

Our experienced Private Client team are specialists when it comes to creating all types of trusts, including Declarations of Trust. Please get in touch if you would like to find out more.

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