A Declaration of Trust can:
- Evidence the entitlement of each legal owner if a relationship were to break down, by recording how the property should be dealt with.
- Record contributions to the purchase price by each co-owner, and how the sale proceeds are to be divided.
- Set out whether shares in the property are affected by the financial contribution of each party during the period of ownership, by conducting or funding home improvements.
- Regulate the treatment of future improvements or outgoings relating to the property (for example, the mortgage, council tax, utility bills and insurance).
- Stipulate how one party can buy out the other’s share and how the co-owners can obtain a reasonable valuation of the property.
Increasingly, parents or grandparents are choosing to assist their child or grandchild with the purchase of property, but do not have the protection of being named on the legal title to the property.
If the contribution is a loan or investment and not a gift, this should be recorded in writing, especially in the case of family loans.
A Declaration of Trust is essential here:
- A gift to a child may not be intended as a gift to the child’s partner as the other joint owner. If the relationship breaks down, the child’s share can be protected by a Declaration of Trust.
- A gift by a parent can be beneficial for inheritance tax purposes. The Declaration of Trust records and clarifies the gift which avoids future issues within the family and HMRC. If a parent making a lifetime gift wants to ensure all their children are treated equally, but cannot make the same lifetime gift to all, this should then be reflected in an appropriately drafted Will, usually involving a discretionary Will trust.
- Without a Declaration of Trust, there is more chance of costly and time-consuming disputes about the division of proceeds when a property is sold or the relationship breaks down.
A declaration of trust should be professionally drafted. If you are a Joint Tenant, but now feel it would be better to own your property as Tenants in Common, we can sever your joint tenancy for you. If you do intend to enter into a Tenancy in Common, ensure that your Will is reviewed as part of that process so that it deals in full with how that share should be bequeathed on your death. Get in touch for more details.