What is a Declaration of Trust?

When two or more people enter into the legal ownership of a property, a Declaration of Trust (also known as a Deed of Trust) can be a useful document to have around. But a trust deed is a legally binding document - that's why it's worth understanding the bigger picture before you take one out.

What is a Declaration of Trust?

In simple terms, a Declaration of Trust is a roadmap for shared property ownership. So if you and someone else are buying a house together, it's a smart move. It serves to protect your interests in the property.

The document spells out who owns what, how costs are split, and what happens if things change, like selling the property. While not a must-have, getting a Declaration of Trust clarifies the nitty-gritty details, avoiding potential disagreements and keeping your partnership on solid ground.

So how does it work?

As a legal document, a Declaration of Trust is fairly extensive, covering all of the terms and financial arrangements associated with the management and ownership of a property. It outlines info on:

• Shares: Who owns how much of the property. A declaration will register and protect each party's beneficial interest in the property. This can differ depending on the type of ownership you have, whether you are tenants in common or joint owners.
• Equitable interest: How equitable interest should be distributed. For instance, if one party invested more in the initial deposit, they could receive the larger sum back along with their agreed share of profits. Or if another owner contributes less to monthly mortgage repayments, the shares can be recalculated each year based on respective financial contributions, ensuring a fair distribution of interest.
• Financial contributions: Who contributes what to mortgage repayments, bills, and other property costs.
• Rights and responsibilities: Who has final say over key decisions related to the property's management, ownership, and developments.
• Event of sale: How a sale would go, including the terms for transferring ownership if one owner were to leave, as well as how the proceeds are divided.
• Changes in circumstance: If one owner wants to buy another out, or if there's a mutual decision to sell, a Declaration of Trust provides a structured framework for handling such situations.
• Conflict resolution: A written roadmap to resolving disputes between co-owners, helping to prevent issues from escalating.

Who would need a Declaration of Trust?

A Declaration of Trust is designed specifically for individuals who are looking to purchase a home together, including:

• Couples: Unmarried couples or civil partnerships buying a house together often use a declaration to outline ownership shares, financial contributions, and what happens in case of a split.
• Friends or relatives: When friends or family decide to jointly invest in a property, a declaration can help define exact shares in ownership, responsibilities, and roadmaps for potential changes.
• Business partners: If business partners are purchasing an investment property or commercial premises together, a declaration specifies ownership interests, financial contributions, and how property decisions are made.
• Co-investors: Individuals who pool their resources to invest in real estate may use a declaration to outline the terms of their investment, profit-sharing arrangements, and what happens if one investor wants to exit.
• Unequal contributions: In cases where co-owners contribute different amounts to the property purchase, a declaration can ensure a fair distribution of ownership and responsibilities.
• Protecting interests: In situations where one co-owner is contributing a substantial portion of the funds for the property purchase, a declaration can protect their investment by outlining in writing.

How much does a Declaration of Trust cost?

A Declaration of Trust can vary in price from solicitor to solicitor, with some deeds costing £200 and others £1000. The price is dependent on the solicitor in question, the complexity of the case, and the purchase price of the property.

In the purchase of a property, the declaration itself is usually drafted as part of the legal services provided by a solicitor, and the associated fees for drafting this document are included in the solicitor's overall fee structure rather than listed separately as a disbursement.

Get in touch with a solicitor's private client team to find out more about their legal fees. Or if you want to know more about the costs associated with conveyancing specifically, check out our handy guide to conveyancing fees.

Is a Declaration of Trust legally binding?

Yes, a declaration is a legally binding document. A declaration is a formal legal agreement that outlines the terms and conditions regarding financial interest, management, and distribution of assets, typically in the context of shared ownership, investments, and estate planning.

Can a declaration be changed or challenged?

As with most formal legal documents, a declaration is designed to be unambiguous and comprehensive, which makes it pretty difficult to challenge in court. Only where fraud or misrepresentation can be proved to have occurred will a court consider disregarding the contents of a declaration.

However, it is possible to amend or update the contents of a Declaration of Trust with a Deed of Variation - or replace the old declaration entirely with a Deed of Surrender.

Deed of Variation

If circumstances change and an existing Declaration of Trust no longer meets the requirements of the parties involved in the property, the parties can agree to take out a Deed of Variation.

This legal document allows the parties to make changes to the original terms without rewriting the entire agreement. Once all parties agree on the changes, they sign the deed of variation, making the adjustments legally binding.

Deed of Surrender

Unlike a Deed of Variation which amends parts of a Declaration of Trust, a Deed of Surrender allows a party to surrender their rights or interests to the property mentioned in a declaration. Depending on the circumstances, the parties involved might need to create a new agreement or update the existing one to reflect the changes resulting from the surrender.

How do I get rid of a Declaration of Trust?

With a Deed of Variation and a Deed of Surrender being two ways one can amend or withdraw from a Declaration of Trust, what are your options for actually getting rid of the declaration?

1. All parties agree that their intentions have changed

A Declaration of Trust is solid evidence of the intentions of all parties at that single period in time. You can't just get rid of it if you decide you want a different share of things.

However, circumstances do change, and if all parties agree that they want to change the terms in light of present circumstances, this can be achieved through a Deed of Variation.

2. A family court can overrule the deed

This can happen if the court determines that the declaration is fundamentally unfair and would cause serious detriment to one or more parties in divorce or dissolution proceedings. The court can then change your beneficial split when awarding shares and assets.

3. When the property is sold

The proceeds are split according to the deed. When your conveyancing solicitor is satisfied that the terms have been met, they'll remove the restriction placed on the legal title at HM Land Registry.

What happens to a Declaration of Trust if you get married?

A new marriage can prompt changes in your ownership of your primary residence. For instance, you may wish to transfer from sole ownership to joint tenancy with your spouse. This, of course, will affect the relevance of the Declaration of Trust.

If you have a prenuptial or a postnuptial agreement, their terms can influence the impact of the marriage on the Declaration of Trust. As such, the declaration should be consistent with the terms in the marital agreements to avoid any conflicts.

In the event that the marriage dissolves, other factors can be given weight over the declaration. For example, if children are involved, their needs must be met and assets can be used to maintain their upbringing.

Regardless of the declaration, the Matrimonial Homes Act 1983 provides certain rights to spouses regarding the matrimonial home. This includes the right to live in the home unless a court order or agreement specifies otherwise. So even if one of you owns the property outright, your spouse has the right to occupy it.

Joint tenants and tenants in common

When it comes to owning property with more than one person in the UK, the most common types of co-ownership are joint tenants and tenants in common. So, how does a Declaration of Trust give a boost to these owners?

Joint owners

In a joint tenancy, each owner has an undivided interest in the whole property, and if one owner passes away, their share automatically transfers to the surviving owner.

While joint owners have the right of survivorship, a declaration can still be useful to outline specific arrangements, such as the division of responsibilities, financial contributions, or how the property will be managed.

Tenants in common

With tenants in common, each owner holds a distinct and separate share of the property. This share can be unequal, and it can be transferred or inherited independently.

A declaration can be particularly valuable for tenants when they want to specify the percentage ownership of each co-owner, outline responsibilities for property expenses, or establish what happens to a share in case of death or sale.

Summary: An essential document for co-owners!

If you're venturing into joint homeownership, securing a Declaration of Trust is a non-negotiable step. This essential document not only clarifies ownership details but also serves as a safeguard for your shared interests.

Remember: your first crucial step is to seek legal advice from a seasoned solicitor or conveyancer. Your home-buying conclusion deserves the assurance that comes with a thoughtfully crafted and legally sound agreement.