Setting Up A Declaration Of Trust
Did you know that 60% of shared property arrangements end in disputes when there's no formal legal agreement in place?
Whether you're buying a house with your partner, sharing inheritance with siblings, or investing in property with friends, protecting your rights is crucial. A Declaration of Trust serves as your legal safety net, clearly documenting who owns what and preventing costly disagreements down the line.
Many property co-owners discover too late that verbal agreements and good intentions aren't enough when circumstances change. Without proper documentation, you risk losing your fair share of the property or getting trapped in lengthy legal battles.
This comprehensive guide will walk you through everything you need to know about setting up a Declaration of Trust – from understanding its basic elements to finalising the legal document. Let’s ensure your property investment stays protected.
A Declaration of Trust is a legally binding document that sets out the ownership shares and financial contributions of individuals who jointly purchase property. Sometimes referred to as a Deed of Trust, this document ensures transparency and protects co-owners from potential disputes in the future.
A Declaration of Trust can be invaluable in various situations:
• When co-owners contribute unequally to the property purchase.
• When parents help fund their child's home but need their contribution protected.
• When someone contributes financially but isn’t on the property register.
• When one person has poor credit but still contributes financially.
Without this documentation, disputes over property ownership can lead to complex litigation and significant legal costs. A Declaration of Trust helps avoid disagreements about financial contributions, mortgage payments, and what happens if one person wants to sell their share.
Unlike general trust deeds, a Declaration of Trust specifically documents how parties hold equitable shares in a property. It also differs from joint tenancy agreements, which assume equal ownership regardless of financial contributions. Instead, a Declaration of Trust allows for different percentage ownership shares and ensures that each owner’s share is passed according to their will rather than automatically transferring to the surviving owner.
Creating a robust Declaration of Trust requires careful preparation. Proper groundwork ensures all interests are accurately reflected and legally protected.
All parties should compile comprehensive financial records related to the property purchase, including:
• Bank statements showing property contributions.
• Confirmation of mortgage arrangements and payments.
• Documentation of property renovation costs and improvements.
• Income records if the property generates rental income.
You can determine ownership shares in two main ways:
1. Fixed percentage shares – Based on each party’s initial contributions.
2. Formula-based approach – Where shares evolve over time depending on mortgage contributions and other financial inputs.
Having honest conversations upfront can prevent costly disputes later. Consider:
• What happens if one owner wants to sell?
• How will renovations impact ownership shares?
• How will maintenance costs be divided?
By addressing these scenarios in advance, you can build flexibility into your agreement.
A well-drafted Declaration of Trust should include:
1. Property Details and Ownership Shares
• Full registered address of the property.
• Title number from Land Registry.
• Exact ownership percentages for each party.
• Provisions for changing ownership shares over time.
2. Financial Contributions Breakdown
• Each person's deposit contribution.
• How legal fees, stamp duty, and purchase costs were shared.
• Any financial contributions towards renovations or home improvements.
• How these will be repaid upon sale.
3. Mortgage and Bill Payment Arrangements
• Who is responsible for mortgage repayments?
• How utility bills, insurance, and maintenance costs will be divided.
• What happens if one party can’t meet their financial obligations?
4. Sale and Buyout Provisions
• What happens if one owner wants to sell?
• How the property will be valued.
• First refusal rights for existing owners to buy out others.
• Dispute resolution procedures.
DIY vs. Solicitor Assistance
Some property co-owners try using pre-prepared templates available online, but these often lack the necessary legal precision. A Declaration of Trust must be executed as a formal deed, requiring precise wording and proper witnessing.
Engaging a specialist solicitor is the most secure approach. A solicitor can:
• Ensure the document accurately reflects your intentions.
• Verify it aligns with mortgage lender requirements.
• Draft precise legal wording.
• Advise on potential future disputes.
Online Services and Digital Solutions
For a middle-ground option, some online legal services offer solicitor-reviewed Declaration of Trust templates. These platforms typically provide:
• Guided questionnaires.
• Legally reviewed templates.
• Digital storage solutions.
However, even with digital solutions, a final review by a solicitor is advisable.
Finalising and Registering Your Declaration of Trust
Signing Requirements and Witnesses
• The document must be signed as a deed by all co-owners.
• Each signature requires attestation by an independent witness.
Land Registry Considerations
To protect your Declaration of Trust, consider entering a restriction on the property’s title register. This notifies third parties of its existence and prevents one owner from selling without the other's consent.
Secure Storage
• Keep the original document in a solicitor’s deed storage service, a bank safe, or a home safe.
• Maintain a digital copy for reference, but ensure the original is protected, as it carries the most legal weight.
Setting up a Declaration of Trust is a crucial step for anyone sharing property ownership. This legal document safeguards your interests, prevents costly disputes, and ensures fair treatment of all parties involved.
At Chetwood Lloyd Mortgages, we understand the importance of protecting your financial interests. If you're buying property with someone else and want to ensure your investment is secure, get in touch today.
Need guidance on your mortgage and legal protections? Contact us today to get started.
