If you’ve heard of the term Declaration, or Deed, of Trust, and you’re wondering what it means and whether it’s applicable to your property sale, we’re here to help.
Here at Bespoke Law Services, we’ve put together a simple guide to Declarations of Trust for real estate, answering the most commonly asked questions, including when they’re required, who should get one and what it all means in the long term.
What is a Declaration of Trust in Real Estate?
A Declaration of Trust – also known as a Deed of Trust – is a legally binding document that outlines financial interest in a property, and in what proportions.
It’s usually put in place at the time of buying a property by a trusted conveyancer, like Bespoke Law Services.
Put simply, it highlights the financial agreement for the property made between joint owners and/or anyone else who may have a beneficial or financial interest in it.
That way, in the future, if circumstances change (such as the property being sold or one person wants to be bought out), the Declaration of Trust can be reviewed to clarify how the property’s finances are to be split, removing any uncertainty about what will happen.
A Declaration of Trust provides clarity and leaves no room for ambiguity, reducing the risk of disagreements or confusion later down the line.
Who Can Have a Declaration of Trust?
A Declaration or Deed of Trust in real estate can be applicable to a number of people and scenarios.
Some examples of when a Declaration of Trust may be recommended include if you’re:
- Buying a home with someone else and you’ve both put in different amounts of money
- Buying with someone who isn’t named on the mortgage
- A cohabiting unmarried couple buying a home for the first time
- Cohabiting with friends or family members and have put in different amounts of money
- Buying property with a business partner
- A beneficiary of a property (someone legally entitled to part of a property or financial proceeds from its sale)
Examples of Declaration of Trust Scenarios
To make it clearer to understand when a Declaration of Trust may be required, here are some real-life examples:
1. Unequal Deposits
Having unequal deposits is a common scenario when buying real estate. A real-life example of this would be an unmarried couple buying their first home together for £300,000.
Let’s say person A has contributed £60,000 towards the deposit, while person B has only contributed £10,000. The remaining £230,000 is borrowed via a joint mortgage that they’ve agreed to pay 50/50.
The Declaration of Trust ensures that when the property is sold, the first £60,000 of the profit goes back to person A, and the next £10,000 to person B. Any remaining profit left over would then be split 50/50.
2. Bank of Mum & Dad
Another common scenario occurs when parents provide their child with a sum to help them get on the property ladder with their partner.
A Declaration of Trust would then protect the sum provided, ensuring that if the child and their partner were to go their separate ways, the partner cannot then claim half of the parents’ gifted money.
3. Unmatched Mortgage Payments
In this scenario, let’s say two friends are buying a flat. One person pays the initial deposit, while the other agrees to pay a larger portion of the monthly mortgage.
The trust document sets out exactly how these varying contributions equate to percentage ownership.
How Does The Declaration of Trust Work?
If circumstances change and selling the property becomes necessary, or if someone wants to buy someone out, a Declaration of Trust will honour any initial payments made toward the property, guaranteeing that everyone receives their specific financial contributions.
After that process has been completed, any remaining profits from the property can then be split between the parties involved.
What Can a Declaration of Trust Include?
As well as stating the specific financial contributions made towards the property at the time of the sale, a Declaration of Trust can also include other components, such as:
- The percentage of the property each person will own
- How the money will be split should the property be sold
- How much each owner will contribute towards the mortgage payments
- How each person may contribute towards additional fees (such as stamp duty, legal fees and utility bills)
- The amount each person contributes towards the deposit, and how much will be repaid
- How the property will be valued before it’s put up for sale
Your trusted solicitor or conveyancing team will work closely with you to determine what should be included within your Declaration of Trust, as some items may be less or more important to your situation.
If you’re new to the property buying process and unfamiliar with some of the legal terminology used throughout, our conveyancing jargon buster breaks down the most common terms in plain English.
How to Get a Declaration of Trust
A trusted solicitor or conveyancer can help guide you through the conveyancing process of drafting a Declaration of Trust. They will ensure that the document is legally binding and includes all the specified clauses to prevent future disagreements.
If you’d like to discuss your situation with an expert, call us on 0345 373 2030 or email us at enquiries@bespokelawservices.co.uk. One of our trusted conveyancers will get back to you with personalised information about your situation and provide advice on next steps.
Declaration of Trust: FAQs
What happens to a Declaration of Trust if you get married?
This is a common question, as many people in modern-day living enter into a cohabiting relationship before deciding to get married.
If you have a Declaration of Trust and you’ve then got married, this deed will no longer legally stand to inform parties of their agreed-upon shares, according to the Matrimonial Causes Act 1973.
However, if the marriage breaks down and a dispute arises over asset distribution, the courts may review the Declaration of Trust as additional background information.
How much does a Declaration of Trust cost?
As with any legal document, the exact cost of a Declaration of Trust can vary based on a number of external factors, such as:
- How complex the document is
- If the deed is bespoke
- The number of parties involved
- Any extraneous clauses (such as stating specifics on “what if” questions)
- The legal provider you’ve chosen
You could expect a Declaration of Trust to cost between £200 and £1,250, but again, this can vary based on your circumstances.
Can you create a Declaration of Trust for your children?
Yes, a Declaration of Trust for a property is a safe way to guarantee your children will have financial benefit from your property in the event of a sale or a change in circumstances.
An example of when this could be is if a parent is cohabiting with someone who is of no relation to their child, but wants to ensure the child will receive their financial contribution to the property in the event of their death (when paired with a valid will), or during other circumstances.
How long does a Declaration of Trust last?
The lifespan of the Declaration of Trust typically aligns with the property’s ownership timeline.
It will remain effective as long as the specified conditions are still met, or may be stated to last until a specified event, such as a death or the selling of the property.
Can a Declaration of Trust be changed?
Yes, a Declaration of Trust can be modified, but all original parties must fully agree to the changes.
To make the updates legally binding, a solicitor or conveyancer must draft a formal amendment called a Deed of Variation.
Can a Declaration of Trust be Challenged in Court?
Yes, a Declaration of Trust can be challenged or overturned in court, but it is very difficult to do so because it is a legally binding document.
A judge will usually set it aside only if there is clear proof of fraud or misrepresentation, or if one party was forced to sign it under duress.
It can also be overturned if it is proven that a fundamental mistake was made in drafting the document, or if it was intentionally created to hide assets from a bankruptcy claim or a divorce settlement.
Do you need a solicitor for a Declaration of Trust?
It’s highly recommended that you use a solicitor or conveyancer to create a Declaration of Trust, as this will ensure the document is drafted correctly and is legally binding.
Here at Bespoke Law Services, we offer Deed of Trust services for real estate, providing you with reassurance and a guarantee that your finances will remain protected when buying a property with someone else.
For more information, contact our expert team of conveyancers to discuss your Declaration of Trust requirements.
