If you’re buying a property with another person or receiving financial support from someone else to make the purchase, you can use a Declaration of Trust (a Deed of Trust). It’s a legally binding document that records and declares the financial arrangements between everybody having a financial interest in that property.
The key objective of a Declaration of Trust
A Declaration of Trust essentially eliminates the scope of any future disagreements that may take place based on the financial support contributed by each person involved in the purchase. It can also clarify other related points such as what will happen if a particular owner wants to sell the property, who will be responsible for property outgoings, etc.
When should you have a Declaration of Trust?
Here are the situations when getting a Declaration of Trust would be a prudent idea.
- When you’re buying a property jointly, it’s quite likely that you won’t be able to split the costs 50/50. Therefore, it’d always be fair to reflect the same in the property’s share. For example, if you’ve contributed 80% of the purchase price and the other one paid 20%, each of you will have a financial interest in the property in accordance with your individual contribution. With the help of a Declaration of Trust, you’ll be able to declare what is contributed by each one and what each of you should receive if one person buys out other’s share or the property is sold.
- If you’re buying the property on your own, you’ll likely seek financial help from friends and family members. In many cases, they may want to have their money back in the future. A Declaration of Trust can help you clearly mention the amount of money you should repay and under what circumstances.
In both the above cases, a Declaration of Trust is extremely important to make things transparent in terms of who should be repaid and how much. You may also make a Declaration of Trust if both the situations apply to you meaning you’re buying the property with another person and with financial help from others.
What should be included in a Declaration of Trust?
You can include all or some of the following clauses when making a Declaration of Trust.
- The amount of money contributed by each party toward the deposit.
- The percentage of the property will be owned by each party and how much money should be repaid to each of them in case the property is sold or one person buys the other one’s share.
- Intentions of each party toward making contributions for paying maintenance and mortgage of the property along with other outgoings.
It’s important to understand that a Declaration of Trust is a personal agreement between you and the person whom you’re buying the property with or between you and the person(s) from whom you’ve received financial support. Therefore, your obligations to the mortgage lender won’t be impacted by a Declaration of Trust.
How to change a Declaration of Trust?
A Declaration of Trust can be changed based on the situations but only when both parties agree. However, if you plan to make significant changes, it’s advisable to have a fresh one written.
You should also note that though you can enter into a Declaration of Trust whenever you want, you should try to get it written at the time of completing the purchase of the property. You may also register it at Land Registry, which would help future buyers become aware of the fact that the registered owner isn’t the sole owner of the property.
Whether or not you need to make a Declaration of Trust is your personal choice. However, it should be considered whenever you’re investing in a property to be able to simplify different intricacies in the future.