I’m thinking of buying a property, but should I invest in a Declaration of Trust?

Yes. By setting up a Declaration of Trust at the outset of any joint ownership benefits everyone involved and provides clarity on each parties’ intentions which can avoid any financial disputes in the future.

Buying a property is one of the biggest financial commitments we will make in our lifetime and it is something that you need to get right from the get-go and do everything possible to protect your investment – and the investment of any other parties financially involved. There are two categories of people that a Declaration of Trust is especially important for: those jointly buying a property with an unequal deposit, and those who are buying property and getting financial assistance from someone else, like their family.

If you’re just starting your research into a Declaration of Trust, you may well come across the term ‘Trust Deed’, but don’t worry – it’s usually the same thing!

By setting up a Declaration of Trust you can legally outline the financial arrangements of each parties’ ownership. This prevents any financial uncertainty around your investment in years to come if there was ever a separation.

When would I need a Declaration of Trust?

A common situation where you would need a Declaration of Trust is when one or more persons own a property but they need to legally set out their initial financial contributions. This could apply to couples just starting out and buying their first home together or a group of friends who have purchased a property jointly. 

Often, Bank of Mum and Dad get financially involved when their children fly the nest and a chunk of the deposit money may well come from them. To protect their share in the joint financial investment, there contribution should be cited in any Declaration of Trust also. 

So how does this work?

In this example 3 friends have purchased a property together but they have contributed uneven sums of money to the deposit/fees – Friend A contributed 70% and Friend B contributed 30% and Friend C had no money for a deposit – the mortgage payments and bills are split equally every month. We would highly recommend that a Declaration of Trust be drawn up showing these contributions and set out their respective shares of ownership. When it comes to the sale of the property for whatever reason (possibly and commonly a breakdown in friendship) the deposit/fees investment percentage is protected rather than the property be sold and the profit split three ways. Without a Declaration of Trust, this could happen and Friends A & B would be very short changed with Friend C benefiting more from the sale.

What else do I need to know about a Declaration of Trust?

  • No more than 4 people can legally own a property at the land Registry therefore a Declaration of Trust can set out who really owns the property and in what shares with 4 or less names. 
  • A Declaration of Trust is legally binding and can be enforced in court and goes above what is recorded in the Title Deed on the Land Registry. 
  • You can craft your Declaration of Trust to suit your needs and there are many things that you could include, such as: 
  • Breakdown of who paid how much towards the deposit, stamp duty and conveyancing fees.
  • The percentage share of who owns what and how this will later translate if the property is sold.
  • If someone else has contributed to help you out, what they expect to get back.
  • The amount each party is expected to pay towards any mortgage repayments, utility bills and council tax
  • How much deposit percentage was paid and what they will get back.
  • Who will receive any rental income should you let out the property, rather than sell.
  • Who owns the furniture.
  • …and lots more.

Relationships change. If you think you can agree on the share of the money each person will get when the property is sold, then great! However, if there is a disagreement, the courts can get involved which will be an uncertain, very expensive and stressful process. 

It’s always a good idea to use an experienced solicitor to draw your Declaration of Trust as they will have extensive knowledge of the law in this area. Here at Sheryl Perry Solicitors, we work closely with you to ensure that your document reflects your purpose and interests in the property and will protect you for years to come.

If you would like to book a 30-minute FREE consultation to discover more about how a Declaration of Trust can protect your financial investment in property, please do get in touch. We are always on hand to offer the very best in legal advice.

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