Declaration of Trust for property – an explanation
When buying a property, more and more people are relying on a Declaration of Trust to protect their investments.
Vili Chung, Partner at Tallents Solicitors in Southwell, explains what it is and why you should consider having one.
What is a Declaration of Trust?
This is a legally binding document which is drawn up when a property is bought. It clearly evidences the individual financial contributions made to the property purchase, or the proportion of ownership of the buyers, or other interested parties in the property.
Why might I need a Declaration of Trust?
A Declaration of Trust protects any investment in a property and will be very important when the property needs to be sold. Depending on how it has been drawn up, it can show the proportions of contributions made to a property, such as the deposit, mortgage repayments, property maintenance or improvements.
It’s quite common for there to be differences in the financial contributions made by each party when buying a property. Perhaps one person might be providing more towards the deposit because of profits made on a previous house sale, a financial loan from a family member, or an inheritance received. A Declaration of Trust will record these proportions for future note and proportionate redistribution of any future equity when the property is sold, if required.
Buying a property with someone else
In the UK, it’s possible to hold a property bought by two or more people in two different ways: as joint tenants or as tenants in common.
Joint tenants: each owner owns the property equally and neither has a clearly identified share. On death, the ownership automatically passes to the surviving owner. On final death, the property is then inherited as per the terms of any written will. Without a valid will, the rules of Intestacy will apply instead. This style of property ownership is usually used by couples who wish to leave the property to the survivor. However, it may not be appropriate if you specifically want to leave part of the property to children from a former relationship, for example.
Tenants in common: this type of property ownership means that each owner has differing shares in the property, and this is recorded in the Land Registry. Having a valid will if you own your property as tenants in common is very important as without one, the share in the property of the deceased owner will be distributed subject to the laws of Intestacy. This means the surviving owner might miss out on inheriting their home if the shares are passed to relatives of the deceased instead. As a tenant in common, owners can distribute their shares in a property through a valid will to beneficiaries other than the other owner, such as children or other relatives.
Is a Declaration of Trust legally binding?
A Declaration of Trust is a legally binding document. It is designed to protect any named party’s investment in a property. As such, the actual Declaration of Trust can’t be changed but a Deed of Variation detailing new clauses can be applied to it, to note small changes.
However, if larger changes are required (perhaps one of those named originally has been bought out), then it’s advised to rewrite the Declaration of Trust entirely, as the new declaration will then supersede any previous document.
Think you may need a Declaration of Trust?
As everyone’s situation will be different when buying a property, it’s worthwhile speaking to your solicitor early on in the process and getting legal advice regarding a Declaration of Trust relevant to your circumstances. Please call us on 01636 813411 or book an appointment to discuss your situation in confidence. Appointments can be made at our Newark, Southwell or Mansfield offices.