Declaration of Trust

When you jointly own a property with another party, it is essential to declare your ‘beneficial interests’ so your intentions are clearly set out from the outset, which can help avoid future confusion and disputes.

The title at Land Registry will show the legal ownership of the property but will not specify the shares in which you own it.

This article looks at the importance of a Declaration of Trust for cohabitees who are not in a formal marriage or civil partnership.

What is a Declaration of Trust

A Declaration of Trust, also called a deed of trust, is a legal document confirming the co-owner’s shares, rights, and obligations of the property. Declarations of Trust become important if you are buying a property as a joint owner or if you are getting financial help from someone else, such as a parent.

A Declaration of Trust also helps ascertain details of the ownership and shares passing to an estate if one or more owners die.

The owners usually hold the property on trust for themselves as beneficial owners. However, individuals may hold the property on trust for someone else, even if they do not benefit from the property.

In the UK a Declaration of Trust is legally binding on the owners. However, a Family Court has the power to disregard this in divorce proceedings when dividing financial assets.

What is included in a Declaration of Trust?

It is important to seek specialist legal advice to ensure a Declaration of Trust is correctly drafted to adequately protect your interests and legal rights. What you include in this document will depend on your circumstances, and a property solicitor can help you tailor it to your needs. A Declaration of Trust will typically include, but is not limited to:

What percentage of the property will each person own, and how will the money be split if the property is sold
How much will each person pay towards the mortgage, and how will the mortgage ultimately be paid off
How the property will be passed on to other beneficiaries in a Will

Joint legal owners

You can own the property either as joint tenants or tenants in common. A joint tenancy is where the whole property is equally owned by those named owners, with no specified shares. Joint tenants have 50:50 equal rights to the property. On death, the property will automatically pass to the surviving owner. On the death of the last surviving owner, the property will be distributed as per the terms of the last, late owner’s Will. You cannot pass ownership of the property under the terms of your Will if you own a property as joint tenants whilst there is a surviving owner.

Advice should be taken from an appropriate legal professional when a Declaration of Trust is set up to address this particular issue.

A tenancy in common gives each owner of the property a set of shares, such as half or a quarter ownership. When one owner dies, their share passes to the beneficiaries stated in their Will. Their share does not automatically pass to the other owner(s).

Without a valid Will, your property share will pass in accordance with the government rules of Intestacy, which may not reflect your wishes. Therefore, when setting up a Declaration of Trust, it is imperative that you also consider making or updating an existing Will to ensure that your share of the property passes per your wishes.

Avoiding property disputes

One of the main benefits a Declaration of Trust can provide is to minimise the scope for a future disagreement, which can be especially important if, for example, you are buying a property with your partner outside of marriage or a civil partnership. If there is a disagreement and no legal documents are set up, it is possible to ask a court to determine your rights. However, the litigation process is lengthy, costly, and very stressful. Unmarried couples need to realise they have different legal rights than married couples should they split up. In property dispute proceedings, courts will always consider the unique facts of a particular case, but if there is no evidence of an agreement on who owns what shares of the property, typically, there is a presumption of equality, meaning that the partner who contributed the most may ultimately lose out.

Do you need a Solicitor to prepare a Declaration of Trust?

While it is possible to prepare a Declaration of Trust for your property on your own, there could be severe legal implications for not having your wishes reflected correctly. Also, mistakes could mean the document is rejected in a court of law. Therefore, it is always recommended that you seek advice from a regulated property solicitor with expertise in this area of law to draw up your Declaration of Trust to ensure your legal rights are protected, and the document is legally binding.