Declaration of Trust and Property OwnershipJames Trafford
For all parties that have a financial interest in property, their financial arrangements can be governed by a declaration of trust. The legally binding document will lay out all the provisions of what each person is entitled to and what must happen if the property is then sold. A declaration of trust can typically be used when one person is purchasing property with others, especially a partner, with friends, or when the bank of mum and dad steps in to lend a helping hand.
A declaration of trust is intended to prevent disputes after property has been sold and is usually made at the time of purchase. Without one in place, there could be conflict over who is owed what and how much.
There is no set limit on how many people can sign a declaration of trust. The parties named in the declaration can include the parties named on the mortgage and any other party that will financially contribute to the property but is not on the mortgage.
For cohabiting, unmarried couples, a declaration of trust may be needed when the partner moves in and then pays towards the mortgage.
Declaration of trust compared with a deed of trust
Many see the two as the same thing in practice, but they are technically different for different purposes.
The principal difference between the two is the number of legally binding clauses that they each contain. A declaration of trust, for example, affirms the intention that the participating parties intend to create a deed of trust, naming the beneficiaries and what is being held in trust, such as property. However, this is the point at which the declaration will expire.
A deed of trust, on the other hand, will include many clauses and intentions concerning what will happen to the property, including when it is sold, as well as including the declaration of trust. For a deed of trust to be formal and legally binding, it must be witnessed and then filed at the Land Registry.
What categories of people might need a deed of trust?
- Unmarried couples
- Someone not named on the mortgage
- Buying with the help of relatives
- Purchasing with a partner and getting family help
Unmarried couples – sometimes called cohabitating couples – do not receive the same legal protection and benefits as married couples do. Indeed, a common fallacy is that a “common law” husband or wife exists and possesses several rights, but in fact, this is not true.
If you decide to live with your partner but remain unmarried, it’s strongly advisable to obtain a declaration of trust to clarify what will happen if you split and go your separate ways. The declaration will typically reflect what each person has financially contributed to the property, such as their respective contributions to the deposit, monthly mortgage repayments, in addition to any money spent on maintenance, repair, or general improvements to the home.
Where couples buy property as “tenants in common”, a declaration of trust is particularly useful in securing the rights of each contributing partner, including a parent that has contributed to the deposit, something that is very common these days.
Someone not named on the mortgage
Sometimes there will be parties that pay towards the monthly mortgage payments but who are not named on the mortgage. There could be several reasons why this person is not named on the mortgage, such as they have poor credit history, so they were unable to be part of the mortgage. Alternatively, they could already be named on another mortgage, making them unable to be named on a second mortgage. Perhaps the most common reason why someone is not named on the mortgage is that the mortgage has been taken out before someone meets their partner, who then moves in afterward and starts to contribute towards it.
In such common scenarios as outlined above, and others, the declaration of trust is useful to reflect the party’s financial interest in the property. Furthermore, the person not named on the mortgage could have a “restriction” registered at the Land Registry to protect their interest.
Buying with the help of relatives
Depending on what terms the relationship is on, if you decide to buy property with the help of family members, such as your parents or siblings, a declaration of trust can be very useful. However, it is often the case that parents will make gift deposit contributions and are not looking for any legally binding interest in the property.
The types of provisions that can be provided for by the declaration include specifying how much is to be repaid and under what specific circumstances this money should be repaid.
Purchasing with a partner and getting family help
A common scenario in which property is purchased is when couples buy property with the help of their parents.
The declaration of trust is often utilised here because the contributing parents will want reassurance that, in the event the couple split later down the line, they will be able to recoup their money rather than allow their child’s ex-partner to walk away with it.
The cost of a declaration of trust
A solicitor will be required to draft the declaration of trust. As you can imagine, the fee charged by the solicitor will depend on how lengthy and complex the declaration ends up being and how much work is put into it, including any negotiations that may have taken place.
You may be able to find a solicitor who will charge a fixed fee of about £900. There are basic declaration of trust templates available to purchase online, but it is strongly advisable to get solicitor to draft one up for you to cover all the points that you want to add.