When buying property with someone else, it is often advisable to secure a Declaration of Trust. This is a type of trust deed that clarifies the ownership and financial arrangements between parties who are buying a property together - whether they are romantic partners, friends or a group of investors. It can specify each party’s financial contributions and how they affect ownership, or future distributions should the property be sold. As such, a Declaration of Trust can act as a way to protect your financial interests when selling a property that you co-own with someone else. 

There are many potential applications for a Declaration of Trust and, if you are entering into a situation involving significant financial risk - such as buying or investing in property, or gifting a deposit to a relative - it can be useful to understand how they work. Here, the expert trusts lawyers at Percy Hughes & Roberts Solicitors explain some of the most common applications of a Declaration of Trust, why you should consider one, and how the process works.

Purchasing Property with a Partner or Friends

One of the most common situations that requires a Declaration of Trust is when you purchase property with a partner. If the couple contributes different amounts towards the deposit, mortgage payments, or other associated costs, a Declaration of Trust can specify how much each party has contributed and how the beneficial interest in the property will be divided if it is sold in the future. This document is particularly important if you are unmarried, as the default legal position may not reflect your financial contributions or intentions.

For example, when purchasing a property jointly, one party may contribute more to the ongoing mortgage repayments than the other. Over time, these unequal contributions can add up to a significant difference in the amount each party has invested in the property. A Declaration of Trust can record these contributions and specify how equitable interest should be accounted for if the property is sold or one party wishes to buy out the other’s share. This may prove crucial in the event of a relationship breakdown. Especially if the property value increases over time, the party making larger contributions may want to ensure that their investment is proportionately recognised in any future distribution of equity.

Cohabiting couples do not have automatic rights to each other’s property in the event of a separation, so a Declaration of Trust may be more important in these cases. It will outline each person’s contribution and indicate how this affects the distribution of funds when the property is sold.

Similarly, if you are buying property with family members or friends, you may need a Declaration of Trust for the same reason. Parties in these situations may choose to be joint tenants, meaning they have equal ownership and automatic inheritance rights upon the death of one tenant. If they do not, a Declaration of Trust can prevent disputes by clarifying the value of each party’s contribution and reflecting their financial arrangements or intentions for the property. It can also set out the terms under which the property can be sold or bought out by other parties.

Protecting a Gift or Loan for a Property Purchase

Young people buying their first property may receive financial help with their deposit in the form of a loan or a gift from a parent or relative. A Declaration of Trust can be crucial in these circumstances. It can protect the funds given to the buyer by clearly stating whether the money is a gift or a loan, and how ownership of the property should be treated. 

If ownership is to be shared, it is important to distinguish between legal owners, who hold the title to the property, and beneficial owners, who have a financial interest in it. If the money is a loan, the Declaration of Trust can specify the repayment terms and whether the loan is to be repaid with any interest. Alternatively, the document can clarify that the gift is not expected to be repaid but should be recognised in the distribution of the property’s proceeds if sold.

Large financial gifts from family members, such as when parents help their children to buy a home, can create expectations and potentially lead to conflict. However, a Declaration of Trust can help to prevent future disputes within the family by offering a legal foundation to underpin a gift or loan of this type.

Investment Properties

If you are purchasing a property as an investment alongside other investors, a Declaration of Trust is vital. If prepared correctly, it will clarify the terms of ownership, including each investor’s financial contribution, their share of the rental income, and how the property will be managed. The process of agreeing a Declaration of Trust is also an opportunity to lodge restrictions on property Title Deeds to protect each investor’s interests.

The Declaration of Trust should specify what will happen in the event of a sale, including how the proceeds will be distributed among the investors. It may also outline the process for buying out an investor’s share if they wish to exit the investment before the property is sold. This might include offering the share to the other owners first, or determining how the property will be valued.

All of this is particularly important in long-term investments, where property values may significantly appreciate, to delineate how income should be divided according to each investor’s initial stake. If they make further contributions over time, this may require you to update the Declaration of Trust - or, it may be possible to account for these changes within the initial document, depending on the arrangement you want.

How Can Percy Hughes & Roberts Help? 

If you need a Declaration of Trust, speak to the team at Percy Hughes & Roberts Solicitors. We have extensive experience in drafting Declarations of Trust, advising on the terms you should include, and explaining the potential financial implications you should consider. We can also help you to understand the different types of trusts that could support your estate planning, and help to make sure your family enjoys the maximum value of your estate after you pass away.

If you require legal advice in relation to any Wills, Trusts and Probate matters, Percy Hughes & Roberts can help. Contact one of our expert wills, trusts and probate solicitors today by calling 0151 666 9090 or by completing the “Get in touch” form on this site.