What is a declaration of trust?
A declaration of trust is a document that confirms the proportions in which two or more individuals own a property.
If two or more people are purchasing a property together they may want to purchase as tenants in common. This declaration of trust for tenants in common records each person’s contribution and therefore the proportions of the property they own.
Unlike joint tenancy, tenants in common can specify their distinct share in the property. This document sets out the respective beneficial interest of each tenant in common based on their contributions to the deposit, mortgage and ongoing maintenance.
Creating this declaration of trust when purchasing is important when the property is sold as it ensures that each homeowner gets a fair portion of what they put into the property.
Why do I need a declaration of trust?
You need a declaration of trust when you are buying property as tenants in common with one or more people and you want to carve out distinct shares. Upon the sale of the property, you will receive back the same percentage of the proceeds as you put in of the distinct share. It is also possible to leave your distinct share to someone in your will, which is not possible to do if you are joint tenants.
When to use
Use this declaration of trust
- If you are buying a property as tenants in common with one or more people and all parties wish to confirm how their contributions to the following are to be made:
- purchase price;
- mortgage payments; and
- maintenance of the property
What it covers
This declaration of trust enables homeowners
- To have a legal document which confirms the actual proportions in which owners own their homes
- To confirm the actual amounts originally spent by each party in terms of a percentage amount
- To confirm the proportions to be repaid to each homeowner when the property is sold
- To specify the parties’ contributions for the payment of the mortgage and maintenance obligations
- To prevent arguments as to who gave what at the beginning and who should get what when a property comes to be sold
The declaration of trust is a purely personal agreement and the obligations you have to your lender mortgage company will always remain joint and several, whatever you state in this deed. It will always remain a fact that if one of you fails to pay the mortgage, the other is/others are wholly responsible.
How many parties can enter into declaration of trust?
Any number of parties can enter into a declaration of trust.
What steps do you need to take before entering into this agreement?
Work out very carefully the proportions in which you and the other trustees will own the property and remember to include the costs of the purchase in your calculations, because they will reflect the proportions that will be used to distribute the sale proceeds when the property is sold.
How can you terminate this declaration of trust?
You can terminate this agreement by giving four months written notice to each of the other owners.
- If you are joint tenants (which means when you die, your co-owner(s) automatically inherit your property and you cannot leave it by your will). It is possible to sever the tenancy and then complete a declaration of trust. If you are doing this and your shares are not equal, you will need advice from a lawyer
- For further advice, if you are buying a house unequally and you have children between you.
If you would like to discuss the above further, please contact The Law Practice UK Ltd today.