What is Declaration of Trust and when should I have one?

If you decide to buy a property in unequal shares, using a solicitor to draw up a Declaration of Trust is a sensible idea to help protect both parties if things don’t turn out as planned.

We spoke to Abbey Pettit, Conveyancer at Holden Smith, to find out more about a Declaration of Trust, what they contain, and why they are used.

What is a Declaration of Trust?

A Declaration of Trust is a legal document that sets out the financial arrangements between two parties buying a property jointly and those with an interest in a property. A good example is where an unmarried couple is buying a house together and both putting different amounts into the deposit or paying more of the mortgage every month.

As well as outlining the deposit each person paid, the document can specify the percentage of the property that each person owns, how much each person will contribute towards the mortgage repayments, and the agreement for the division of sale proceeds if the property needs to be sold.

If a third-party gift is provided to fund some of the property purchased, for example a deposit amount from a parent or grandparent, the Declaration of Trust can be used to specify that, if the property is sold, the gift will be repaid first before the proceeds of the sale are split.

Are Declarations of Trust becoming more popular?

We are certainly seeing Declarations of Trust being put in place more often now as many people are putting in different amounts of money to buy properties and, naturally, want to protect their interest.

Buying a house with a partner but not being married to them is the norm nowadays, but not being married can have an impact if a dispute arises regarding the property – this is where a Declaration of Trust comes into its own.

Many people also use gifts of funds from third parties to help fund the purchase and want to ensure their family member gets that money back on completion of the sale of the property.

What is the difference between Joint Tenants and Tenants in Common when making a Declaration of Trust?

If you hold the property as Joint Tenants, you each own 100% of the property. If anything were to happen to either party, then the house would automatically pass to the surviving owner.

If you hold the property as Tenants in Common, each party owns a percentage of the property. If anything were to happen to either party, their share of the property would pass by their Will and would not automatically pass to the surviving owner.

If I don’t have a Declaration of Trust in place, what could happen?

A Declaration of Trust means you are clearly setting out your intentions and removes the possibility of a dispute if the worst happens.

If a dispute did arise and a Declaration of Trust wasn’t in place, you could face additional solicitors’ fees and the inconvenience and emotional stress of time spent negotiating and agreeing the sale of the property and how the sale proceeds are to be split.

If you want to make a Declaration of Trust when buying a property, you should inform your solicitor at the beginning of the purchase process so they can arrange to get one drawn up for you.

For more information and support with the topic covered in this blog, please contact us here or email hello@holdensmith.co.uk.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article, please contact Holden Smith.