UNDERSTANDING A DECLARATION OF TRUST: A CONCISE OVERVIEW
A Declaration of Trust is a legally binding agreement established among co-owners of a property or individuals with vested financial interests in the property.
Typically, a Declaration of Trust is enacted during property acquisitions in order to remove uncertainty regarding the distribution of funds among involved parties upon the property’s eventual sale.
Applicability of a Declaration of Trust
A Declaration of Trust is advisable in the event that:
Co-Purchasing Property: When buying a property jointly with varying financial contributions regardless of whether the co-owner is a partner, family member, or friend.
Financial Assistance: When a third party assists financially with the property purchase and the goal is to protect their invested money,
Business Partnerships: Purchasing a property in collaboration with a business partner,
Non-Mortgage Co-Ownership: When buying a property with someone who is not listed on the mortgage.
Timing and Completion
To ensure effectiveness, a Declaration of Trust should be established by the property’s completion date. Whilst the declaration can be created afterwards, it is important to acknowledge that other parties might decline to sign the agreement, rendering it ineffective.
Key Components
A comprehensive Declaration of Trust should include the following:
the amount each party has contributed to the property’s initial deposit,
the respective amounts each party will contribute to mortgage repayments,
the ownership percentages concerning each party’s share of the property,
the allocation of funds to each party in the event of a sale,
how the property shall be valued,
and how the equitable interest will be managed and addressed among co-owners.
Legal Validity and Flexibility
A Declaration of Trust is legally binding when presented in the form of a deed and can be utilized in legal proceedings. In order to implement it, all parties involved must willingly endorse the agreement, with a full understanding of its conditions. However, with unanimous consent, adjustments to the declaration can be made.
To conclude, a Declaration of Trust serves as a pivotal legal instrument for coordinating property ownership arrangements, especially when co-owners have varying financial involvements. This document aids in preventing disputes and uncertainties, further contributing to a smoother co-ownership.
Our expertise
Adam Benedict has recently been instructed by a client, the beneficial owner of a property, to prepare a declaration of trust in respect of a complex property dispute with the legal owners. The Declaration of Trust was offered to the legal owners as an ‘olive branch’ in lieu of pursuing a declaration at court as to the true ownership of the property.
If you would like more information about Declarations of Trust, please contact us at info@adambenedict.co.uk. We look forward to hearing from you.
Written by Jenna Ashton, Summer Intern
Approved by Adam Creasey, Managing Director
August 2023
