Declarations of Trust
In the course of advising you on your Will, we may recommend that you, and any joint owner of real property, sign a Declaration of Trust as part of the estate planning necessary for your Will to operate properly.
We explain below how Declarations of Trust work, how property can be owned jointly, and why this may be useful when drafting your Will.
What is a Declaration of Trust?
A Declaration of Trust is an agreement which records the way in which you, and a co-owner (or co-owners) own real property (land, a house or a flat) together.
Real property can be held as Joint Tenants or as Tenants in Common.
If you own a property as Joint Tenants, each owner owns an undivided share of the property as a whole, as opposed to having a distinct share.
If one co-owner dies, the property will pass automatically to the surviving owner/s irrespective of what is set out in the deceased’s Will. Most married couples hold their property on a joint tenancy and it is the most common form of co-ownership.
As Tenants in Common, each party has a distinct and severed share in the property. If one owner dies, his or her share does not pass straight to the surviving co-owner/s, but passes according to the deceased’s Will (or under the Intestacy Rules if there is no valid Will).
There may be several reasons why you should consider holding property on a tenancy in common:
ο where unmarried couples, friends, or relatives decide to buy property together – each may wish to pass their share to their own family member.
ο if a married couple may not want their individual share of the property to pass to the surviving spouse outright on death. For example, on a second marriage where both spouses have children from their respective first marriages, they may want their distinct shares to end up with their respective children, to ensure that all children are treated equally. The alternative would be to leave the Will of the survivor to regulate who gets what – and unfortunately the concept of the “wicked stepmother” (or stepfather) is far from a fairytale fiction.
ο where owners may have made unequal contributions to a property purchase. This should be recorded in the event of a future sale of the property, or if the relationship breaks down. For a tenancy in common, property is assumed to be owned in equal shares unless otherwise evidenced.
ο for asset protection reasons, such as ensuring that the property of the first spouse to die is not vulnerable to being used in funding the survivor’s future care fees, or is left to a second spouse.
Content of a Declaration of Trust
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.
Declarations of Trust for Family Loans
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.
Our Service
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.
Alex Truesdale Wills Limited offers a professional Will drafting and estate planning service covering the Surrey, Kent, Greater London areas, the South Coast of England and Wales.
Call us on 07887 946557 or request a call back here.
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