What is a declaration of trust and what does it do?
A declaration of trust is something that often comes up when buying property as joint owners. It is also called the deed of trust which records the financial arrangements between parties having a financial interest in the property.
What is a declaration of trust?
A declaration of trust is a legally binding document recording the financial arrangements between joint property owners. It also sets out the terms on which the property is held on trust.
Moreover, it records the purchase price of the property, share of the property each party owns, their contribution to the mortgage, insurance bill, and additional property maintenance.
The deed of trust also outlines what should happen in various eventualities, for instance, how the equity and income will be split if the property is sold or rented.
What does a declaration of trust do?
Attaining a declaration of trust is necessary to protect the interests of joint owners in the property and give each party their share with respect to initial investment at the time of sale of the property.
Some of the common reasons why you should sign a declaration of trust include
Investing in the property as an unmarried couple
Cohabiting couples do not get the same legal protection as married couples. Therefore, it is wise for unmarried couples to sign a declaration of trust when buying a property together. It will prevent uncertainty and outline ‘who gets what’ should the couple break up.
Protects an owner whose name is not on the mortgage
It is also useful when someone has an interest in the property and contributes payment, however, does not have their name on the mortgage. Whatever the reason why they do not have their name on the mortgage, the declaration of trust will record specific arrangements to protect their rights and beneficial interests.
Reduces the risk of disagreements
A property is a significant investment and all the parties involved would want their money protected. The Land Registry records the ownership without detailing the specific proportions each party has contributed to the property.
The declaration of trust would record their contributions and other important details to reduce the risk of any disagreements, misunderstandings, or disputes.
What should be included in the declaration of trust?
Each deed of trust is different, tailored to the needs of the parties involved. Some of the details that this document should contain include
- The initial deposit amount contributed by each party
- Each party’s intended contribution to the mortgage repayments and other outgoings
- The percentage of equity each party will get from the sale of the property
- Any arrangements for valuation of the property before it is put up for sale
- Details of each party’s share in rental income
It is a personal agreement between the joint owners of the property, therefore, they can add other clauses for different eventualities that may arise later.
It is a legally binding agreement that must be prepared as a deed and the parties concerned must enter into the agreement willingly.
