A Declaration of Trust (also known as a ‘Trust Deed’) is a legally binding document stating how property is owned.
When a property is purchased as joint owners of a property, a trust is deemed to exist. In the absence of any documentation or agreement to the contrary, the joint ownership is assumed to be in “equal shares”.
If there is a desire for the property to be held in “unequal shares” this must be set out in writing, usually by way of a Declaration of Trust. It can also be used for third-parties to protect a “financial contribution”, to assist with tax planning, or used alongside a Will.
The Declaration of Trust will set out the “background” to the property such as the address, names of the owners, any financial contributions, when the property was purchased, whether it was registered as joint tenants or tenants in common and mortgage details.
The document goes on to set out which owners hold what interest in the property. This might be set out in percentages or a fixed sum. For example, if two people own the property person A may hold 60% interest and person B will hold 40% interest, or person A may have an interest of a fixed sum of say £50,000 representing the deposit.
The document also sets out how any remaining equity should be divided in the event the property is sold. It is entirely a matter of what is agreed between the parties, although whatever is agreed should ideally reflect the practical realities of who has or contributed (or will be contributing) what.
If the property is held as joint tenants then it will be necessary to sever the joint tenancy to tenants in common so that the split in ownership (as set out in the declaration of trust) takes effect.
Severing the tenancy in this way is a separate matter to the declaration of trust and your lawyer will be able to advise you on this.
Our Trust Deed solicitors will guide you through the process when it comes to starting the process of a Declaration of trust. The declaration of trust should set out the contributions that each person has made to the purchase of the property, identifying who owns what, and what happens in the event of someone wishing to move out.
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In addition it may set out details of how the property expenses will be paid, responsibility for insurance, repairs, mortgage, maintenance and should provide a mechanism for the sale of the property, in the event of a breakdown in the relationship, on the death of one party.
A Declaration of Trust is a legally binding document; therefore tenants in are bound by the terms of the declaration, providing clarity and certainty. Should there be a dispute further down the line; the Declaration of Trust can be presented to show evidence of what was originally agreed when the Trust Deed was being created. The only exception for alterations or dissolving of a Trust Deed is if both parties are in agreement.
Joint tenants own equal share of the property. Should one of the owners die, the ownership of the property will go to the other party. This particular agreement also states you cannot leave instruction in your will to pass on the ownership of the property.
Tenants in common own separate shares of the property which have been individually personalised to accommodate each party, however should one person die; the property does not automatically become the other owners’. Tenants in common can choose to leave their share of the property within their will.
A Declaration of Trust (or Trust Deed) can be suitable for a variety of circumstances when purchasing a property, some examples may include:
As Declaration of Trust Solicitors, We can assist with the related registrations at the Land Registry to protect the interests of contributing parties.
There are several times in life when a Declaration of Trust may be suitable.
If different sums have been put in and either or both party wants to protect their financial “stake” in the property, a Declaration of Trust can be used to set out what interests each of them have.
It may be that someone is contributing a lump sum towards the purchase of a property that is not going to be registered in their name.
For example, owner 1 and owner 2 are buying a home to be registered in their joint names, but a family member of owner 1 is lending a deposit to help them purchase the property.
The Declaration of Trust can protect the third-party deposit/contribution and then the remaining equity can be agreed to be held by owners 1 and 2 in equal or unequal shares.
If a married couple own a property that is let out as an investment and the couple pay different rates of tax then it is possible to use a Declaration of Trust to take advantage of their different income tax positions, including capital gains tax, to improve their overall tax position.
If you are a married, or cohabiting, couple and you each have children from previous relationships, then the chances are that you will want to protect your respective interests in the jointly owned property for all the children. You can do this through your Wills.
However, you would also need to draw up a Declaration of Trust so that it is clear what interest you each have in the property.
We offer a free initial 15 minute telephone appointment to give you the opportunity to speak to us, before deciding if you wish to proceed in instructing us to act on your behalf.
Please contact K J Smith Solicitors on 01491 630000 (Henley on Thames), 0118 418 1000 (Reading Head Office), 0118 418 1200 (Reading Central), 01256 584000 (Basingstoke), 01483 370100 (Guildford), 01494 629000 (Beaconsfield), 01344 513000 (Ascot), 01635 785 100 (Newbury) or email firstname.lastname@example.org.
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