Keeping everything in proportion with a Declaration of Trust

Keeping everything in proportion with a Declaration of Trust

If you’re not happy to own the equity in a property equally, then you must hold the property as tenants in common.Buying your dream home with your other half? Purchasing a buy-to-let with your business partner?

If this sounds like you and you’re forking out on a property jointly with another party, it’s worth thinking about how you want the equity in it to be split. 50/50 sounds fair, but there can be countless reasons why this ratio is different for many people.

If you’re not happy to own the equity in a property equally, or you want to leave your equity to someone other than your co-owner on your death, then you must hold the property as tenants in common.

The relationship between the co-owners dictates how the equity is divided so, in order to document this share, co-owners should think seriously about entering into a Declaration of Trust, also known as a Deed of Trust.

This is an important document in which trustees are appointed to hold property for beneficiaries. A trustee is somebody who manages property that is held in a trust. They will be responsible for using the money or assets in the trust to benefit somebody else. A Declaration of Trust has room for up to three trustees, all of whom must be over the age of 18.

Therefore, any trustee will be ‘trusted’ to act in an appropriate manner and in the interests of the beneficiaries. It’s governed by The Trustee Act 2000, whose powers will only come into play if the Trust is not drafted well.

What else does it do?

A Declaration of Trust effects how your ownership should be registered, but it can also avoid uncomfortable conversations with your co-owner as you each specify your share in the equity.

As a legally binding document, the Declaration of Trust can’t be ignored when a decision has to be made as to how much you should each receive, either on being bought out or after the property’s sale. It won’t allow either of you to change your mind about how you will divide any money from the property.

So, with this document in place, it could prevent misunderstandings or family fallouts in the future, whether it be for financial, property or material items.

It’s also important to have a Declaration of Trust when somebody has contributed towards the property but is not named on the title deeds, to protect their interest.

So, if you need to clarify how a property is owned but can’t, or don’t want to register the true position at the Land Registry, it’s well worth thinking about.

But is it right for you?

You must be sure that you’re making the right decision to share the ownership of a property, because the Trust changes this ownership. It can be protected at the Land Registry and enforced in court.

It will also mean that responsibility for the upkeep of the property and any mortgage repayments will change proportionally as well.

You’ll need to decide what proportion each partner owns, as the total cost of the property could include the purchase cost and other fees such as stamp duty, mortgage interest and repairs or renovations.

The proportions that you set out in the trust deed are those in which any sale proceeds will be distributed. If the property is sold for less than these total costs, someone financing the deposit might not get back all that he or she put in.

Sticking together

It’s important that the registered owners complete the Declaration of Trust together. If it’s completed without all parties’ consent, then registration could be considered fraudulent.

Once the Declaration of Trust is complete, ensure it is dated on the date of completion of the property purchase and registered against the title at the Land Registry. If not, future purchasers will not be aware that someone else may have an interest in the property.

There are a number of scenarios why you may want to take out a Declaration of Trust. You might be buying jointly, married and own a buy to let property together, already own a property with another party, providing your child with a helping hand onto the property ladder, or even separating from your partner.

Whatever it is, a Declaration of Trust can provide a safe and easy way to protect your interests.