What Is A Declaration Of Trust?

Published: 11/06/2024

First and foremost a Declaration of Trust is essential if you co-own a property with someone else as Tenants in Common (be it, spouse, friend or any other). It is important to get a reputable solicitor to draw up a Declaration of Trust. This is a legal document that will protect you and your co-owners (and probably save you a lot of hassle down the line!).

What is a Declaration of Trust

Declaration of Trust is a legally-binding document that clearly outlines what each co-owner owns, how the value of the property will be divided should you ever split up or sell up, and so forth. It also records what each owner has contributed to the property, including things such as the initial house deposit, mortgage repayments and/or any financial upkeep of the property. This is particularly useful if one person has contributed more money than the other, as is often the case. It is also necessary where only one person owns the property, but the other person who contributed to the purchase of the property, but may not be able to be a party to the mortgage or be named on the legal title to the property, however still wishes to protect their interests.

When owning a property, the interests of the homeowners are recorded in two different ways. There are “legal estate” owners, who are shown on the title deeds or land registry title entries. Then there are the “beneficial” or “equitable interests” owners, who are not registered on the land registry. The Declaration of Trust is the document that says the “legal” owner will hold the property on ‘trust’ for the “beneficial” owner(s). As such, both owners are protected legally and recognised that the registered “legal” owner is not the only owner of the interests in the property. The legal owners may be the same or different people to the owners of the beneficial interests.

The legal owner(s) are called the trustee(s) and hold the property and interests in it, on behalf of the beneficial owners.

All this is governed by the various law statues such as Trustee Acts of 1925 and 2000, The Law Property Acts 1925 onwards, and Trust of Land and Appointment of Trustees Act 1996 to name a few.

We realise how this all may sound a little complex, as any property transaction is. That’s why it is essential that you enlist the assistance of a property solicitor to help sort all of this out for you.

Why it is essential that co-owners have a Declaration of Trust in place

If you co-own a property as Tenants in Common but don’t have a Declaration of Trust in place, you run the risk of facing a potentially complex and unpleasant legal situation. If you don’t detail your individual stakes in the property, and then later disagree on what you should receive, if the property is sold or transferred and you may end up having to go through a very expensive and lengthy court case to sort it out.

Furthermore, if you and your partner or family member have both contributed to the purchase of a property, yet for whatever reason one of you doesn’t want to be, or can’t be, listed on the land registry title (e.g. another mortgage already in place, or you have poor credit rating or too old to hold a mortgage), of course it makes sense for you both to be recognised as owners of the interests in the property.

A Declaration of Trust ensures that all parties included are legally protected and get what they deserve.

When is a Declaration of Trust important?

Scenario One

Sally is buying her first house, exciting times ahead! Her parents are generously helping her by providing some money towards the property purchase price, with the promise of them sharing any ‘profits’ made on the property down the line.

Sally will be the registered owner of the home, on the title deeds of the property. However to safeguard Sally’s parents’ rights and to avoid any confusion in future reference, they can be listed as a beneficiary on the Declaration of Trust. If, down the line, Sally decides to sell the house, the Declaration of Trust will clearly state how much of the proceeds will be going to her parents. Simple.

Scenario Two

Couple James and Jenny want to buy a house together. However, Jenny is still the owner of a different property, with an existing mortgage in place. As such, she can’t be part of another mortgage or be named on the legal title. A Declaration of Trust will state that although the legal title is just in James’s name, he holds the beneficial interests in it as trustee, for himself and Jenny in the shares set out in the Declaration of Trust. So, if the house was to be sold later on down the line, it would be clear who got what.

Scenario Three

Friends Anna and Alice are fed up of renting, so decide to buy a house together, as homeowning housemates. Anna and Alice will be the “legal” owners, but as Anna is contributing 60% of the purchase price, and Anna 40% of the purchase price, the Declaration of Trust will set out their unequal contributions (60/40) and then should they sell at a later date, what they will each receive (60/40) from the net proceeds.

A Declaration of Trust, detailing the co-ownership as tenants in common, records each person’s contribution and therefore the proportions of the beneficial interests they own.

How do I get a Declaration of Trust?

You will need to secure the services of a solicitor who has a lot of experience in this field of work, as they will need to help talk you through the steps and get the Declaration of Trust drawn up for you.

Here at GWlegal, you will be looked after personally by Melissa Hughes, our head of Wills and Probate department, who has over 10 years’ experience in the legal industry.

Who are GWlegal?

GWlegal are a wills & probate solicitors based in Liverpool, specialising in wills, lasting powers of attorney, estate planning, probate and estate administration.

If you have a legal matter you wish to discuss don’t hesitate to get in touch. You can call us on 0345 373 3737 or email us at hello@gw.legal with your question.

Who are GWlegal? We’re a national firm with local values.

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Content correct at time of publication.
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