What is a Declaration of Trust?
A Declaration of Trust, often referred to as a Deed of Trust, is a legal document which outlines the financial agreements agreed when more than one person is involved when a property (or share of property) is purchased. A Declaration of Trust provides clarification to those involved and can help prevent any upset or disagreements arising in the future.
This can be especially useful when someone, perhaps a parent or friend, loans money to the buyer to enable them to purchase their home or a property is bought by joint owners who are contributing in unequal shares. The Declaration of Trust will explain what should happen to the property if it is sold or if one of the parties wish to buy another out.
A Declaration of Trust is a legally binding document and the terms agreed must be followed, therefore, it is important that all parties involved understand and are happy with the terms and that they have sought the right advice before agreeing to the terms. It is recommended that the document is drafted at the time that the property is purchased to ensure all parties are protected from the outset.
How does it work?
In today’s world, it is becoming more and more difficult for younger people to get on to the property ladder and so it is not uncommon for the ‘bank of Mum and Dad’ to provide a solution. Or you may be purchasing a property with a partner or friend, but decide you don’t wish to split costs 50/50.
Regardless of the situation, there is likely to be a substantial sum of money involved and a Declaration of Trust is recommended to protect everyone’s interests and ensure all parties receive what they are entitled to in any eventuality. Without this, it would be unclear how much should be repaid and to who when the property is sold.
This advice applies to anyone, family member or not, who may have helped with the purchase of a property.
What should be included?
Every situation is different and so it is recommended that you seek advice from a legal professional to ensure the Declaration of Trust is tailored to your requirements however, a Declaration of Trust will commonly include:
Details of how much each person has contributed to the purchase price, how much is to be repaid and when
What percentage of the property each person will own and how the equity should be split if the property is sold
How much each person will contribute towards the payment of the mortgage and how the mortgage will ultimately be paid off
It is up to the people involved to decide and agree exactly what is included in the Declaration of Trust but it is important that any agreement is cemented in this document so everyone can be assured that their interests are protected.
Why might I need a Declaration of Trust?
There are two main situations that you might need a Declaration of Trust:
If you have purchased a property with someone else. If you are not married to this person, then there aren’t any laws to protect your investments. It is also recommended that a record is kept with details of who has paid what, even if this is equal amounts, to ensure everyone received what they are entitled to.
If you have received financial help to purchase a property. If your parents or any other person has supported you financially with your purchase, they may want to get their initial investment back at a later date.
Everyone’s situation is different; Some parents may wish to provide financial support when purchasing a property without expecting this to be repaid, others may want a share of any profits made on the house, whatever the scenario, deciding whether a Declaration of Trust is right for you is a personal choice.
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