Buying a property with a partner, friend or family member is an exciting but stressful time in your life. The last thing you want to think about is the ‘what ifs’.
What if your relationship changes?
What happens if one of you puts in more money?
What if you sell in a few years?
These types of questions can feel extremely awkward; however, setting up a declaration of trust can protect you and your future.
What is a declaration of trust?
A declaration of trust (also know as a Deed of Trust) is a legal document that records how a property is owned between two or more people. It sets out who owns what share of the property and how the sale proceeds should be divided in the future.
In other words, it protects what each person has put into the property. A declaration of trust might be considered if someone is putting more than 50% of the money into the property.
People do assume that the legal document is only for couples; however, a declaration of trust can be used by:
- partners
- spouses
- friends buying together
- family members buying together
- parents helping a child buy a home
Isn’t that already covered by the title at the Land Registry?
Not always.
When you purchase a property jointly, you can own it in one of two ways:
- in equal shares
- in different shares
The Land Registry does not always show the full financial details of how the property is owned or how contributions are to be treated. This is where a declaration of trust comes into play – it sets out clearly what has been agreed between you.
What sort of things can a declaration of trust include?
A declaration of trust can be tailored to your scenario, but it often deals with issues such as:
- how much each person contributed to the purchase price
- whether one person paid the deposit
- how the mortgage payments are shared
- whether certain expenses should be repaid before the property is divided
- what happens to the money if the property is sold
For example, if you put in a much larger deposit compared to your friend, the document can confirm that you will receive that money back before the remaining proceeds are shared.
When is a declaration of trust especially useful?
A declaration of trust is particularly important where:
- one person is contributing more to the deposit
- a family member is helping with the purchase
- one party already owns part of the property
- the mortgage payments will not be shared equally
- the property is being bought by friends or siblings
- someone is moving into a property already owned by the other person
In these cases, not having a legal document in place can leave people exposed to loss of money and fallout later on.
What happens if we don’t have one?
This is often when problems start to arise. If a dispute develops and there isn’t a declaration of trust, the court may have to try to work out what the parties intended at the time of purchase.
This is rarely straightforward and can be stressful, time-consuming and expensive.
A properly drafted declaration of trust can avoid much of that uncertainty.
Is a declaration of trust only for when things go wrong?
Not at all. A declaration of trust can sometimes be associated with break-ups or disputes; however, the real purpose of the trust is to provide clarity while relationships are working well. It helps everyone involved to start from the same understanding and reduces the risk of misunderstandings later.
You could see it as a practical and sensible piece of forward planning.
Can it be changed later?
Yes. A declaration of trust can usually be updated if your situation changes. For example, your friend has now contributed a lump sum, meaning you have paid equal amounts to the property. Just make sure any changes are properly documented, and not just verbally.
Do I need a declaration of trust?
By law, you don’t need a declaration of trust, but we do recommend that you obtain one if:
- you are not contributing equally to the purchase
- you would not expect the property to be split 50/50 if it were sold
If you answered yes to either of those points, a declaration of trust is usually the sensible next step.
If you are looking to take control of your future and protect your loved ones with specialist trust solicitor guidance, please get in touch with our Legal Director, Zafna Hassen, on zafna.hassen@lambbrooks.com or call 01256 844888.