Declarations of Trust, what are they and why you might need one?

So what are Declarations of Trust? Also known as a Deed of Trust. They are simply a legally binding document/agreement that sets out how individuals own a property.

Owners of properties fall into two categories, Legal Owners, which means their names are on the legal title to the property and Beneficial Owners, who have an interest in the property but are not necessarily on the legal title of the property. Beneficial interest or ownership of a property can also be used to express a Legal Owner’s interest in the property, meaning where different legal owners own a different share of the Beneficial Ownership of the property. For example, where one owner had contributed more to the purchase price of a property than the other owner or when someone has contributed capital to the purchase of the property but is not on the legal title.

That all may sound very complicated but its really not, the purpose of a Declaration of Trust is to simplify the ownership, defining each owners interest, so everyone knows who owns what share and avoid costly legal disputes later down the line.

So when do you need a Declaration of Trust? They are more common that you might think. There are numerous scenarios, where you might need a Declaration of Trust. The most common use of a Declaration of Trust is when couples buy a home together and one of the owners contributes more the purchase price than the other, or where family member contribute to a deposit and want to protect their interest. 

Here are a few common scenarios:

The young couple 

Peter and Jane have been in a relationship for a number of years and have decided to buy their first home together. Peter has been saving for years and has saved £30,000 which he wants to use towards the deposit on their first house. Jane does not have any savings and will not be contributing to the deposit. They intend to buy the house in joint names and pay the mortgage equally between them. However, Peter wants to protect his initial deposit in case they separate. In this scenario, Peter and Jane will own the property as Tenants in Common. When the house is sold, Peter and Jane can agree that either Peter will receive the first £30,000 from the sale price and share the remaining net proceeds of sale between them equally, or that Peter’s share of the net proceeds would be expressed as a percentage of the sale proceeds, meaning his initial interest of £30,000 would increase as the value of the property increases. 

The bank of Mum and Dad

John and Claire’s daughter Michelle is considering buying her first home. Unfortunately, the house prices in their local area mean that Michelle is unable to buy her first home without help from her parents. John and Claire have agreed to contribute £150,000 towards the purchase price of Michelle’s home. However, this is not a gift, they want to protect their capital investment in the property because they are concerned that if Michelle gets married or lives with someone that their interest in the property might not be protected. Michelle is going to buy the property in her sole name with the aid of a mortgage, so her parents name will not be on the legal title of the property. John, Claire and Michelle can enter into a Declaration of Trust, which defines their interest in the property, the agreement can also set out that it is Michelle’s responsibility to maintain the mortgage and other outgoings on the property as well under what circumstances, John and Claire could ask for their money to be returned to them. 

The long in the tooth couple 

Lindsey and Craig have both been married before and have children from previous relationships. Lindsey secured a large capital settlement from divorce settlement, while Craig although has some capital to contribute to the purchase, does not have as much to invest as Lindsey. Lindsey also has a large inheritance from her late mothers estate which she will be using towards their new home. Lindsey and Craig not only want to protect their respective capital interests in their new home, but also want to ensure that if either of them dies that  their children will inherit their interest in the property. Lindsey and Craig can set out their respective contributions as Tenants in Common in unequal shares, they can also define what would happen should the other pass away, for instance they could allow the other to live in the property until their death, thereafter their share would pass to their children or they could set out how the other might buy out the others interest in the property in the event of the other death.  

What ever your circumstances, however complicated, a well drafted Declaration of Trust, can help to set out, at the outset, what each owner or beneficial owner intends.

At Gaddes Noble, we know that life is complicated and not every purchase is the same and making a considered decision when buying a home is fundamental to peace of mind and security for you and your loved ones. Having a well drafted, considered Declaration of Trust in place can save you a lot of heartache and potential future legal fees in the future. 

If you would like to discuss entering a Declaration of Trust, please get in touch, we are happy to talk through your personal circumstances and draft a tailored agreement which suits your individual needs.