Declaration of Trust

A declaration of trust is a legally binding agreement between joint owners of a property and/or anyone else who has a beneficial or financial interest in the property. The declaration of trust describes the relative share each owner or beneficiary has in the value in the property. These agreements are usually made at the time of buying the property and should be made wherever tenants in common have unequal shares in a property or have contributed unequal amounts of money towards the purchase price.

With a declaration of trust in place, all parties know exactly where they stand if the property is sold or if one of them should die. Without a declaration of trust in place, it can be difficult to agree who is entitled to what and can often cause stressful situations, damage to relationships and lead to potentially costly litigation.

Our expert residential property team has helped owners in a wide variety of situations to draw up a declaration of trust that reflects their specific circumstances and ensures that their interests are protected for the future.

When is a declaration of trust required?

A declaration of trust can be required in a range of circumstances, for example:

• If you’ve bought a property with someone else: For couples or friends that buy a property together, a declaration of trust can clearly set out everyone’s financial contribution. In the event of the property being sold, a relationship breaking down, or the death of one of the parties, the entitlement and share of equity is clearly defined.
• If you’ve received financial help: If another individual(s), for example your parents, has supported the purchase of the property, they may eventually want their investment back. This can be clearly recorded.
• If you have children from a previous relationship and wish to protect your interest in the property for their benefit in the future.

What should be included?

Every situation is different, and any declaration of trust should be written to reflect the unique circumstances of your property ownership. Our residential property team will guide you to ensure that the declaration of trust is prepared correctly and meets your requirements.

The document should include the following details:

• The proportion of the purchase price that each party has contributed. This will be reflected in their respective shares of the equity and any future valuation will reflect these shares, whether the property appreciates or depreciates in value. The information is requested to enable the draft to be prepared.
• If there is a mortgage, how much each party will be contributing to the monthly payments.
• Who will be responsible for the cost of other outgoings, repairs and proposed improvements to the property.
• If the property is to be rented out, how the rental income should be divided.
• If the property is sold, how the net proceeds should be divided.
• Include a mechanism for valuation of the property on sale.

Can a declaration of trust be changed once it is in place?

There may come a time when your circumstances change, for example one of the equity holders inherits some money and wants to ‘buy’ a larger share of the property or fund improvements that enhance the overall value of the property and they want to ensure that this is reflected in their share of its value. In such cases, a declaration of can be updated either through a deed of variation that refers to the existing declaration of trust or it can be replaced using a deed of surrender. However, any variation must be approved by all parties.

Does the declaration need to be registered with the Land Registry?

A declaration of trust does not need to be registered at the Land Registry as it deals with the beneficial interest in the property rather than the legal title. However, you will need to register a restriction that will note on your title deeds that the declaration of trust exists to ensure that the declaration is reviewed at the point of sale.

If the declaration of trust gives an interest in the property to a party who is not a registered legal owner, the declaration of trust will need to be registered with HMRC via the Trust Registration Service. If the property is subject to a mortgage your Lender will usually need to approve any third-party interest.

Declarations of trust are often more complicated than they appear. However, they can be an extremely useful way of protecting funds and providing greater certainty for the future. Our residential property experts can advise you on whether a declaration of trust would be useful in your circumstances and take you through the process to ensure that it is drawn up correctly.