What is a Declaration of Trust?

A Declaration of Trust (sometimes referred to as a Deed of Trust) is a legal document that is drawn up when two parties, or more, purchase a property together and they wish to document the legal arrangement in which they will each own the property.

Typically, most joint homeowners who enter into a Declaration of Trust want to stipulate how the sale proceeds will be divided upon the sale of a property.

It may be that the deed need only be a short simple document however, sometimes the situation between clients is more complex and a document which covers a range of terms is required.

Normally, parties will sign a Declaration of Trust whilst in the process of purchasing their property however, we do sometimes get clients who require assistance after the purchase has been completed.

A Declaration of Trust can affect your mortgage therefore it may be necessary for you to obtain consent from your mortgage lender before the document is drawn up and your conveyancer registers the document with the Land Registry.  Whether a declaration of trust affects the mortgage depends on whether the deed adversely affects the lender’s ability to enforce the mortgage rights under the terms of the mortgage offer.

When is a Declaration of Trust required?

There are several reasons why clients may approach us for advice and assistance when purchasing a property. The most common reasons are as follows:

1. One party is contributing more financially to the purchase price of the property and would like to protect this equity. In addition, one party may be paying a higher portion of the mortgage payments and therefore they would like this reflected within a legal document. This is usually the case if couples are unmarried and would like to protect their financial interests in the event of a relationship breakdown.
2. A parent or family member may be gifting money towards the deposit needed to purchase the property and therefore would like to document in which circumstances they expect to be repaid.
3. Sometimes, it isn’t possible for an occupier of a property to be named on the Legal Title/ Property Register or they are not financially able to be named on the mortgage. This could be due to a poor credit rating or if a party is moving into a property which is owned by their partner. Although they are unable to be legally named on the Legal Title for the property, that person may be contributing towards the mortgage payments or renovations being carried out on the property. Consequently, they may want to legally document their contributions in case they should separate.

Why should I enter into a Declaration of Trust?

Couples who are unmarried, do not tend to be legally recognised regardless of whether they have children together or if they are in a long-term relationship. Upon the breakdown of a relationship, if one person has significantly contributed more financially towards the purchase of a property, this can be the catalyst to a range of legal issues, if this owner wants to contest the other party’s ownership of the property.

By entering into a Declaration of Trust, joint homeowners can circumvent these legal issues, as the document will provide clarification for the division of the sale proceeds and ensure that unequal contributions of capital are protected.

Additionally, other contributions can also be recognised and accounted for i.e. an inventory of who owns what furniture.

Is a Declaration of Trust legally binding?

If the Declaration of Trust is executed correctly as a Deed, with precise legal wording, signed by all parties, and witnessed independently; then the document will be legally binding and should be upheld in Court.

Nevertheless, if it can be proven that a party to the document had no understanding of the contents or was forced into signing the document, then this can jeopardise the legality of the Deed.

Furthermore, it should be noted that unmarried parties who enter into a Declaration of Trust, go on to marry or enter into a civil partnership and then separate in the future, should be made aware that the document can be overturned.

During separation or divorce proceedings, the Court will consider the financial needs of each party, which could result in the contents of the Declaration being disregarded.

It is possible, after entering into a Declaration of Trust, to change the terms of the document. If all parties agree, a new Deed can be drafted and executed accordingly.

If you would like to find out more regarding Declarations of Trust, please do not hesitate to contact our New Enquiries team, here at Wilson Browne, who can offer more information and book you in with one of our Declaration of Trust experts.