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What is a Declaration of Trust and in what circumstances should you have one?

A Declaration of Trust is a simple legally binding document that can set out the who owns what shares in property.  It can also make it clear who is responsible for paying the mortgage, insurance, bills, improvement costs and other such day to day issues. 

So when might you want to consider putting in place a Declaration of Trust? 

Here are some examples:

  • You are buying a property jointly with someone else and one of you is putting more towards to the deposit or paying more towards the mortgage repayments.
  • Helping someone else buy a property. For example, if you are contributing towards a deposit for your child you may want to protect this money and ensure that you will receive this back at some point in the future. Or, if your child is purchasing with a friend or partner you may want to ensure that your child is the one that benefits from your contribution. 
  • You are contributing towards the purchase of a property with your child and you are going to be living either in the house with them or in an adjoining annexe.
  • You are the legal owner of property but you want to set out that the property is held jointly with another person(s) without updating the legal title at the Land Registry. This could be for tax purposes if you need to share a rental property with your spouse or simply because there are a number of owners with different size shares in the property and it is not possible to set this out on the legal title. 
  • You own property jointly as Trustees of a Trust along with a Beneficiary of that Trust. The Declaration of Trust can set out what share of the property is owned by the Trust and what share is owned by the Beneficiary as well as what the Beneficiary/Trustees can or cannot do in respect of the property and who is responsible for maintenance and insurance etc. 

The Declaration of Trust can also deal with matters like what should happen if one of the owners wants to sell their share in the property, whether the owner should be allowed to let out the property and include an option for a co-owner to be given first refusal on buying the other owners share (known as pre-emption rights). 

Some points to be aware of when putting in place a Declaration of Trust:

  • Where there is a mortgage on the property, whatever the Declaration of Trust says, the lender maintains the principle that all borrowers are jointly and severally liable under the mortgage. This means that the lender can proceed against any one of the borrowers for the whole amount of the mortgage.
  • Due to the nature of the document and the varied interests which can be represented in it, each party may wish to take separate independent legal advice.
  • A Declaration of Trust is not automatically binding on the courts in the event of divorce. It can be taken into account as one of the circumstances of the case but needs always take precedence.

If any of the above circumstances apply to you and you need to consider putting in place a Declaration of Trust you should seek legal advice. 

For more information on the article above please contact Kelli Pimm.

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