Declaration of Trust – When do you need one

Purchasing a property can be an extremely exciting time, particularly if you’re new to the property ladder. Perhaps you are moving in with a partner or friend, or you are purchasing a property with a relative. Regardless of the circumstances, you should consider having a Declaration of Trust in place to protect your interest in the property.

In this article we will explain what a Declaration of Trust is and why it is important to have one when you are buying a property.

A Declaration of Trust is a deed which sets out terms relating to the ownership of a property between two parties and records the parties’ interest in the property, particularly if unequal contributions have been made. This can be done in simple percentage terms, or it is possible to have more complicated arrangements taking account of growth in the value of the property over time and even how much each party contributes towards a mortgage and the upkeep of the property.

When purchasing a property, it is important to consider how you would like the property to be held and what arrangement will be better suited for both parties and their circumstances.

There are two ways in which two people can own a property:

1. Joint Tenants – This means that you will each have an undivided share in the property, rather than each having a specific share. This type of ownership is usually recommended for married couples or those in a civil partnership, but it’s not typically suitable for people who are not in that kind of relationship. If one of you dies, your share of the property will not form part of your estate (you cannot leave it to someone in your Will), and it will automatically go to the other person, who can then do whatever they want with it.

2. Tenants in Common – This means your shares of the property will be separate and divided from the outset and each of you can decide what happens to your share in your Will, following normal inheritance tax rules. If your situation changes in the future, one of you might want to sell your share of the property. This can cause problems if you haven’t agreed on how to handle it beforehand. So, it’s a good idea to have a Declaration of Trust in place.

Making a property purchase is a big decision and financial commitment, and a Declaration of Trust protects both parties’ interests in the property by outlining what has been agreed regarding the sale proceeds should there come a time when you may want to go your separate ways.
It is also recommended that the trust agreement includes provisions for:

• payment of insurance and other outgoings
• maintenance and upkeep of the property including a prohibition against making improvements unless mutually agreed
• the presence of visitors and guests at the property
• the death of one of the co-owners where the interest of the deceased does not pass to the survivor under the deceased owner’s Will
• calculation of the apportionment of liability for the payment of any negative equity where the proceeds of sale are insufficient to pay off the mortgage
• Pre-emption rights/how to bring the agreement to an end

By outlining what has been agreed between you both from the outset can help avoid potential disputes in the future and will protect your financial investment.

If you are looking to purchase a property with a partner or move in with a friend and would like to discuss a Declaration of Trust, contact our friendly experts to book a free 30-minute consultation to discuss your circumstances.

Tel:          01245 893400
Email:     info@backhouse-solicitors.co.uk
Visit:       17 Duke Street, Chelmsford, CM1 1JU
Or send us a message through the Contact Us page on this website.