What Is A Declaration Of Trust?

A declaration of trust is a key document which relates to a trust and is relevant for any beneficiaries. This guide explains everything you need to know about this document including how it relates to property purchases.  

Lately, it has become increasingly difficult for new buyers to access the property market and purchase their first home. House prices are rising at an alarming rate and in the majority of cases, surpassing any pay increase benefits. This has led to many individuals exploring alternative options when assessing the property market. There are alternatives worth exploring beyond purchasing a property as an individual. For instance, you could decide to buy a property as a joint purchase with members of your family or friends.  

 For this type of property purchase, there should be a declaration of trust.  

Declaration Of Trust Explained

A declaration of trust is a legally binding document. It is designed to protect the interests of beneficiaries who are part of a trust and may have purchased a property together. The main purpose is to ensure that when a property is sold, each individual receives what they are entitled to after investing in it. Purchasing a property with other people without a declaration of trust creates a considerable level of risk. It becomes more challenging to ensure that you do receive the right amount that you are owed when it’s time to sell.  

A declaration of trust will be required if a property is purchased and there are no other existing legal arrangements to protect beneficial interests. One example of this would be a cohabitation agreement.  

Common Reasons For Signing A Declaration Of Trust 

 While buying a property with other people is one of the reasons to sign a declaration of trust, there are other possibilities where this legal document will prove useful.  

For instance, you can be purchasing a property with your partner who you are not married to. Unmarried couples can mitigate risk with a declaration of trust. It’s important to be aware that without this legal document, your rights are not protected. If your relationship does break down, then there is no guarantee that you or your partner will be treated fairly if your property is sold. A declaration of trust can provide the certainty and security that you need in your partnership when making this type of commitment.  

A declaration of trust may also be used to provide protection for someone who is not named on the mortgage. There are many reasons to not include someone on the mortgage. For instance, it is possible that you are buying a property with someone who has a poor credit rating. While they may not be on the mortgage, they could still contribute to mortgage repayments. As such, they should gain a share in the property profits when the home is sold.  

With a declaration of trust, specific agreements are protected including the rights of the individual who may not be named on the mortgage. This is critical as the Land Registry does not take into account the individual proportions that people have contributed to a property. As such, if you do not have a legal document in place then you are at risk of a significant loss when the property is sold in the future.  

This legal document will also ensure that there are no risks from disagreements. It’s possible that when it’s time to sell the property, not everyone agrees on who should receive what or the amount they are owed. This deed of trust guarantees that the share in the property each individual holds is clear. Any interest in property needs to be recorded in writing. A verbal agreement will not be enforced.  

Information Included In A Declaration Of Trust 

 Various different pieces of information can be included in a declaration of trust. This includes: 

  • Percentage each party contributed to the deposit 
  • Percentage each party will own 
  • How much each party will receive from the sale of the property 
  • How the property will be valued for a sale 

 The legal document may also include a variety of different clauses for different eventualities. For instance, it might mention what will occur if the property increases substantially in value. This document is legally binding when prepared correctly so it is important to carefully consider what is included before signing it.  

 Ultimately, if you are planning to buy a property in England and Wales with multiple parties, then you need to make sure that you use this legal document. It will protect your interest in the property as a beneficiary and significantly reduce the level of risk. This is particularly crucial if any party is not going to be named on the mortgage.