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Your Guide to Declaration of Trust

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It is now common for people to buy property together outside of marriage. Often, to help fund a purchase, one or both parties to the relationship will receive financial support from their parents. If a married couple splits up, the separation of their assets and finances would be dealt with by divorce proceedings. However, for unmarried couples there is no equivalent process and each party is entitled to walk away with his/her own assets.

The division of jointly owned property is the issue that frequently causes the biggest concern when unmarried couples separate. If there is a disagreement, it is possible to ask a court to determine their rights, but that will be time consuming, costly, and very stressful.

The outcome of court proceedings will depend upon the unique facts of a particular case. However, the starting point for a court is always - where there is joint ownership, in the absence of clear evidence to the contrary, there is a presumption of equality. Consequently, if there is no evidence of an agreement to own the property in unequal shares, the partner who contributes the most may ultimately lose out. Similarly, half of any contribution made by a parent may end up with their child’s ex-partner.

The Benefits of a Declaration of Trust

To minimise the scope for a future disagreement unmarried couples should enter into a declaration of trust. This enables them to set out their respective shares in the property and to recognise and protect the interests of their parents. Ideally, it should be put in place at the time the property is purchased.

It is also advisable to use a declaration of trust to record an intention of equal ownership when unequal contributions are made to the purchase. This will ensure that the agreement is honoured if the relationship breaks down. Also, if the party who makes the bigger contribution dies or becomes incapable, those dealing with his/her estate will be bound by the declaration.

As a final word of caution, remember that unmarried couples should make a will if they wish to confer any benefit upon one another on death. In some instances jointly owned assets pass automatically to a surviving co-owner without the need for a will. However, in the absence of a will, an unmarried partner has no entitlement to the deceased’s individual assets or his/her share of joint assets held under a tenancy in common.

OTS Solicitors are specialists in the fields of trusts and estates and can help you if you would like to discuss protecting or enforcing your interests in a property.

Where land is owned by two or more people, they each have a simultaneous interest in the land and are known as “co-owners”.

There are two ways in which co-owners may hold property:
– As joint tenants – Under a joint tenancy, each tenant has an indivisible share in the property and all of the tenants are equally entitled to the whole property.
– As tenants in common – If co-owners hold the property as tenants in common, they each have a distinct beneficial share in the property. It is advisable for the co-owners to indicate expressly the proportions in which they hold the property, rather than leaving this to be implied from the circumstances and the financial contributions made by each co-owner. A Declaration of Trust can be used to demonstrate how the property is held by the different co-owners.

A declaration of trust is a legal agreement between the joint owners of property. It may include several pieces of information, such as the amount each owner contributed towards the purchase price, their respective ownership shares, and what happens if someone dies or wants to move out or there is a dispute about how to develop the property.

When is it advised to have a declaration of trust?

If you are buying a home with your partner or friend, and you are purchasing the property as tenants-in-common, then you should speak to your solicitor and get a deed of trust drawn up. It may not be exactly romantic, but it could spare you a lot of pain if you ever decide to go your separate ways.

What are the benefits of having a declaration of trust?

If one of you has contributed more money towards buying the property, you may decide that it is fairer to reflect this in your share of the property for example – where one owner paid 30% towards the purchase price and the other paid 70%, each party to the transaction will hold a fiscally apportioned interest in the property according to their contribution.

In addition, if the property is owned as a tenancy-in-common and one of you dies, that share will pass in accordance with the terms of the deceased’s will (or under the rules of intestacy, if they don’t have a will). This means that the surviving joint owner of the property will have no control over who owns and lives in the co-owner’s part of the property. A deed of trust can be drafted to avoid this problem by stipulating exactly what should happen to the property if a joint owner dies.

Are you buying a property with someone else? You may fit into one of the following categories:

  • Cohabiting unmarried couple
  • Cohabiting friends
  • Cohabiting relatives
  • Business partners

Are you contributing differing amounts to the deposit, fees, or mortgage payments? If so, you need a Declaration of Trust to clarify:

  • The percentage of the deposit each person will pay
  • The percentage of the property each person will own
  • How much each owner will contribute towards mortgage payments
  • How much each owner will contribute towards fees

Have you ever thought about what will happen if you want to sell the property? Have you given any thought as to what will happen to the property if there is a relationship breakdown or if one party simply wants to sell up? You need a Declaration of Trust to clarify:

  • What happens if an owner decides to sell their share
  • What proportion of the sale proceeds each owner will receive if the property is sold
  • How any mortgage on the property will be paid off

You may need a Declaration of Trust:

If you are contributing a large share of the deposit for the property
A Declaration of Trust can help you protect your financial contribution in the event that you decide to sell the property or your share in the property.

If you are contributing towards purchase expenses, such as legal fees, stamp duty or removal costs
A Declaration of Trust can set out your financial contribution and specify how you wish to be repaid in the event that the property is sold.

If you are making contributions towards the mortgage
A Declaration of Trust can set out how you wish to contribute to mortgage payments and how you wish to be repaid for your contribution, should you come to sell the property.

Have you considered any mechanism for buying out your joint owner’s share in the property?
A Declaration of Trust can specify the terms upon which you transfer the property.

If you want to avoid prolonged legal disputes over finances if your relationship breaks down

A Declaration of Trust can set out if and when the property should be sold and how the sale proceeds should be divided between the owners.

When should a Declaration of Trust be created?

It is important to create the Declaration of Trust at a time when the owners of the property and other persons who may have contributed towards it are in agreement.

Do contact us for details.

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