A Declaration of Trust is a legal document that sets out how a property is to be held and the amount of financial contribution each party has made. Without this document the law would presume that the parties hold the property in equal shares i.e 50% each and would mean that any equity would be split in these shares. You would normally create this document prior to completing a property purchase and is particularly beneficial for unmarried and cohabiting couples.
A Declaration of Trust can be entered into even if there is a mortgage on the property. Most commonly, parties wish to sign a declaration of trust when one or both of them have contributed specific amounts of money towards the purchase of the property by way of a deposit or towards mortgage payments or utility bills. On the sale of the property if there was a Declaration of Trust in place then it would ensure that after any remaining mortgage has been redeemed the parties would receive their share of any contribution they have made and the remaining net proceeds of sale would then be shared equally between the parties.
A Declaration of Trust severs the tenancy of how the parties hold a property. There are two ways to hold a property the first one is as joint tenants. This means that the owners have equal rights to the property and on the death of one, their share automatically passes to the survivor and on the death of the last owner the property passes in accordance with their will or the rules of intestacy.
You can also hold a property as tenants in common, this means that owners can hold the property in different shares. They can then leave their share in accordance with their Will as the share does not automatically pass to the survivor. In light of this, when considering entering into a Declaration of Trust it is also advisable to make a will to ensure your share of your property passes in accordance with your wishes.
If one of the parties to the Declaration of Trust were to pass away then their share will be dealt with in accordance with their wishes in their Will or in accordance with the rules of intestacy.
There may be tax implications therefore each party to the Declaration of Trust are advised to seek independent financial advice in respect of this prior to entering into one.
The Declaration of Trust would normally be registered with he Land Registry and you can request that a restriction is put on the title giving the parties additional protection as this would prevent the property being sold without their consent.
We also highly recommend not attempting to draft a Declaration of Trust yourself and to take advice from a solicitor in the preparation of such documents, as on any future sale of the property you may not receive the correct entitlement or benefit.
Please contact us today on 0161 696 6238 to speak with our Wills & Probate solicitors.
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