How we assisted a client to make a Declaration of Trust for a Property

We assisted a client by helping them to arrange a declaration of trust over their freehold residential property.

Declarations of Trust – Overview

Where an asset is held by more than one person, declarations of trust are particularly useful as they clearly set out the interests of the co-owners, and also their rights and responsibilities going forward. The co-owners may decide that the benefit of an asset should be held in equal shares or in some other proportion. It is most often the case that when two people decide to buy a house together, they will want a declaration of trust in place to cover a range of factors (i.e., how the mortgage is going to be paid and who will be responsible for such payments, who will receive the benefit of any rental income, how the property will be sold or a co-owner’s interest in the property being purchased by the other co-owner(s) in the event of separation or breakdown of relationship, etc).

However, declarations of trust are not just useful for co-owners of real estate properties (although they are most commonly used for this purpose), and it is often the case that declarations of trust can be set up for insurance policies, company shareholdings, indivisible assets (such as fine art paintings or a motor vehicle), in conjunction with wills (including secret and half-secret trusts), or joint bank accounts.

Declarations of trust are often viewed as a way to formalise an arrangement and expressly declare what is to happen when the trust period comes to an end. Regrettably, sometimes people put the making of a declaration of trust to one side and forget about it, meaning that the importance of it is by and large overlooked until there is either disagreement between the parties or third parties such as HM Revenue and Customs, or even a trustee in bankruptcy.

It is imperative to recognise the true value of the declaration of trust as not only does it regulate the interests in an asset between the parties concerned, but it also provides evidence of entitlement, alleviating any risk of dispute or uncertainty in the future.

How we helped our client

Our client and one of their parents owned a freehold residential property for a number of years as beneficial joint tenants and were in the process of selling it. Our client was interested in demising a proportion of the sale proceeds to their partner, and their mother was also interested in granting the right to a proportion of the sale proceeds to her partner.

Once we had onboarded our client in the usual way, we provided them with a ‘Declaration of Trust Questionnaire’, and they filled in all of the relevant information including details of the property, details of the parties, any mortgages burdening the properties, and also the specifics of the provisions they would like included in the declaration of trust.

For property-related matters, the questionnaire serves a crucial role in structuring the declaration of trust, ensuring that all essential details are properly considered and documented. It helps establish how the property is to be held (whether as joint tenants or tenants in common) and sets out the agreed ownership shares. It also allows for bespoke clauses to be included, such as specific provisions regarding how sale proceeds should be divided, any financial contributions made by each party, arrangements for covering ongoing costs like mortgage payments or property maintenance, and terms governing the sale of the property in the future.

Additionally, it helps identify the necessary consents that may be required from external parties at an early stage. These can include mortgage lenders who have their own requirements and even specific terms in existence. Identifying, planning for and dealing with such consents aims to ensure that the declaration is legally compliant and enforceable.We then expediently produced a suitable bespoke declaration of trust which was relatively complex as there were stringent mortgage requirements (as a result of there being two mortgages that needed to be discharged prior to any sale proceeds being divided up) and the percentage shares in the sale proceeds being divided between the parties was different for each individual party.

Our client was very pleased with the declaration of trust we produced for them and was impressed with our careful and thoughtful drafting which ensured the interests of each party were clearly defined and protected as far as possible.

How we can help you

If you require a declaration of trust, we would be more than happy to advise you and guide you in relation to the most suitable next steps. As always, we will ensure that your matter is dealt with expeditiously, diligently and effectively.

Please also see our detailed article on how declarations of trust work here.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.