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Declaration of Trust - Everything You Need to Know

on Wednesday, 26 July 2023.

With the rise of cohabiting couples purchasing property together, it has become increasingly important to protect the rights of both parties individually in case of unforeseen circumstances such as relationship breakdown - enter the declaration of trust!

What Is a Declaration of Trust?

A Declaration of Trust is a legally enforceable document typically executed during the purchase of a property or, at times, after a couple starts cohabiting. Its purpose is to define the respective beneficial interests of each party involved in owning the property. The document outlines the legal framework under which each party will finance, own and sell the property. This includes provisions for distributing sale proceeds from any future sale.

 When Is a Declaration of Trust Used?

A Declaration of Trust can be used in a number of circumstances. Some of the most common examples include:

  • When an unmarried couple purchase a property together: couples who are not married or in a civil partnership do not acquire the same legal protections awarded to those whose relationship is recognised by law. Consequently, it is not guaranteed that they will be treated equally in the event of a relationship breakdown. In such cases, a Declaration of Trust becomes instrumental in defining each party's contributions as it establishes their entitlement of the equity should the relationship end or the property be sold for any other reason.
  • When a person’s name is not on the mortgage or the Property Register: this situation may arise, for example, when one of the parties has a poor credit rating or moves into a property already owned by another party, despite making financial contributions towards it. To safeguard the appropriate beneficial interest of the involved parties, a Declaration of Trust can be used to establish and protect their share in the property.

Why Is a Declaration of Trust Important?

The examples provided above highlight the significance of a Declaration of Trust in safeguarding the interests of unmarried cohabiting couples. In certain situations, one party may contribute a substantial amount of money towards the property purchase, creating a potential discrepancy in financial contributions between the parties. In the event of a relationship breakdown, the establishment of clear and defined beneficial interests through a Declaration of Trust becomes paramount to address any potential disputes regarding property ownership.

By outlining the specific arrangements for the division of sale proceeds based on each party's contribution at the outset, a Declaration of Trust provides an effective means to mitigate such disputes.

What Should Be Included in the Declaration of Trust?

Overall, a Declaration of Trust is a flexible document and should be tailored to suit the requirements of each couple or family involved. However, there are certain elements that should typically be included in Declarations of Trust. These include:

  • the amount contributed by each party to the property deposit
  • the percentage of the property each party will hold
  • the amount each party will contribute towards the mortgage repayments and other expenditure
  • the difference in percentages if one party contributes more towards refurbishments
  • the conditions for the sale of the property including the circumstances it can be sold in
  • the process for evaluating the property before it is put on the market
  • the distribution of the sale proceeds

Can a Declaration of Trust Be Overturned?

 A Declaration of Trust is typically created to safeguard parties’ intentions regarding their finances in the future, and to avoid disputes at the end of the period of joint ownership of a property. Therefore, it is not easy to change or seek to overturn a Declaration of Trust.

However, if all parties unanimously agree to change the terms of a Declaration of Trust to reflect any new arrangements or to waive it entirely, such changes are possible. It is imperative that any amendments are set out in writing in a deed. It is also essential for each party to seek independent legal advice to strengthen the enforceability and validity of the revised document.

If you would like further advice or any assistance with executing a Declaration of Trust, please contact Asia Qureshi in our Real Estate team on 0121 227 3704, or complete the form below.

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