How to protect your property interests with a Declaration of Trust

Declarations of Trust – What are they and why do we need them?

As more parents help their children get onto the property ladder and unmarried couples, friends and business partners invest in property we are finding many will register their property ownership as Tenants in Common.  However, quite often many of them do this  without setting up a Declaration of Trust, so what is a Declaration of Trust and how does it protect your property interests?

What is a Declaration of Trust? 

A Declaration of Trust contains the agreement as to the nature of property ownership between co-owners and records:

  • How the property was bought.
  • The share or percentage owned by each person.
  • Who is to receive rental income (if any).
  • Who pays the mortgage or outgoings.
  • The process should one of the owners want to sell and how any future proceeds of sale are to be divided.

You can think of a Declaration of Trust like a contract or business agreement.

Why do I need a Declaration of Trust? 

When there is more then one owner to a property they can hold the ownership of the property as joint tenants  or tenants in common:

  • Joint tenants is when the owners of the property each jointly own the whole of the property. This is a tricky concept but it essentially means that there are no divisible shares. It also means that if one owner dies the property automatically transfers to the surviving owner, regardless of what the Will of the deceased owner says. Married couples often buy property together as joint tenants.
  • Tenants in Common is when there are distinct and separate shares or percentages in the property such as 50/50 or  25/75. On the death of one co-owner the property does not automatically pass to the surviving owner, instead his/her share passes to the beneficiaries of their Will (or intestacy rules if there is no Will).

When a property is owned as tenants in common it is of paramount importance that the co-owners make a Declaration of Trust so that it clearly sets out what share each owner owns.  This is particularly important for unmarried couples, friends, business partners or even between family members where each family member owns a different share of the property. The Declaration of Trust can also be used where the legal owners own the property on trust for someone entirely different, such as a child, and where they themselves have no financial interest in the property at all.

A Declaration of Trust should  prevent any future problems and disputes on the sale of the property as it would have already set out what happens to the money from the sale of the property.

We recommend that anyone who is buying a property or already owns a property as Tenants in Common makes a Will as well as a Declaration of Trust, so that their share of the property passes to their chosen beneficiaries.

So, if you have a property that is setup up as Tenants in Common and would like to speak to one of our experts about setting up a Declaration of Trust and a Will please contact our Private Client Services team on 01908 689341.

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Dagmara Kulczykowska

Dagmara Kulczykowska | Partner

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