Family and Divorce Solicitor Alison Cantor explains whet a Declaration of Trust is and when you might need to put one in place.

A Declaration of Trust for property is a legal document to show that the “legal” owners (named at the Land Registry and on the deeds) hold a property for the benefit of others, known as the “beneficial owners”. The beneficial owner(s) could include the legal owner(s).

When do I need a Declaration of Trust? 

There are several situations in which a Declaration of Trust may be necessary or helpful:

 

 

  • Where:
    • a person who is not the legal owner has contributed financially to a property at the time of purchase or later and that contribution is not intended to be a gift, and
    • it is not desired or possible for the contributor to be named as a joint legal owner. For example, this could be where the contributor cannot get a mortgage jointly with the owner. However, the mortgage company will still need to know about the arrangement
  • Where joint legal owners contribute to the purchase (and perhaps also the mortgage repayments) in unequal shares and want the division of any eventual proceeds of sale to reflect their respective contributions. For example:
    • An older couple who had each owned a property separately, who are now buying jointly and contributing different amounts
    • First time buyers, one of whom has been given money towards the deposit by family
  • No more than four people can be named as legal owners on the title. If a property is to be owned by five or more people, then four of them will have to hold it as legal owners on trust for them all as beneficial owners
  • Children cannot be named as legal owners until they are 18 and so others, such as parents, will have to hold the property as legal owners on trust for the children who would be the beneficial owners

What will the Declaration of Trust say?

  • It should include background information such as the amount each beneficial owner contributed to the purchase price and costs of purchase and who will pay the mortgage and pay for repairs
  • It should specifically set out how the proceeds of sale are to be divided on any sale of the property. This could be in the event of the owners separating or one of them dying
  • It can include more detailed agreed terms such as the specific circumstances which would trigger a sale or whether one party has a prior right to buy the other out and remain in the property
  • Declarations of Trust can always be changed by agreement if your circumstances change
  • If a beneficial owner is not also a legal owner, a restriction can be registered at the Land Registry preventing any transfer or mortgage of the property by the legal owners without the specific consent of the beneficial owner

What happens if I don’t have a Declaration of Trust in place? 

It may be a sensitive issue to consider, for instance when embarking on what is hoped will be a lifelong relationship, but it can save a lot of heartache in the long run to have a Declaration drawn up at the outset. Without it, Court proceedings would be needed to determine the shares in the property if you cannot all agree. This could be costly, slow and stressful and prevent release of the sale proceeds until a Court Order is made. It must be borne in mind, however, that within divorce or dissolution of civil partnership proceedings, the court will not necessarily uphold the terms of a Declaration of Trust as other factors will also be taken into account.

Alison works closely with the TSP Residential Property team in this area. She can be contacted on 01206 217074 or by email at alison.cantor@tsplegal.com