When you share ownership of a property, there’s often a need to outline who owns what and how things will be handled if things change. This is where a Declaration of Trust comes into play. A Declaration of Trust helps set the terms for property ownership between co-owners, making sure everyone’s share is clearly defined and that their contributions are properly recorded. But what exactly is a Declaration of Trust, and how can it benefit you? This article breaks it down and explains why it might be the right move if you’re in a joint property arrangement.
Understanding a Declaration of Trust
A Declaration of Trust is a legal document that sets out the terms of ownership between individuals or parties who jointly own a property. It clarifies what each party’s share is based on their financial contributions or other arrangements made. It’s essentially a contract between the co-owners that defines their rights and responsibilities in relation to the property. Without such a document, misunderstandings could arise if the property is sold, one party wishes to exit, or if a dispute occurs.
Why Do You Need a Declaration of Trust?
So, why might you need a Declaration of Trust? For many, this document can be a simple way to avoid conflict down the road. If you and a co-owner are buying a property together, but one person is contributing more money than the other, the Declaration of Trust ensures that the additional contributions are recognized in the future. This document lays out the specifics of ownership and prevents disagreements over how much each party should get if the property is sold or the ownership situation changes.
A Declaration of Trust becomes especially important if your relationship with the co-owner changes. For example, if one party wants to sell their share or if one party dies, this document dictates how the property will be handled. It’s not just a precaution; it’s a way to protect yourself and your investment in the long term.
When Is a Declaration of Trust Useful?
A Declaration of Trust is typically necessary when two or more people are purchasing a property together and there are unequal contributions. For instance, let’s say one person contributes more towards the deposit, or perhaps one person agrees to cover the mortgage repayments while the other handles maintenance or improvements to the property. Without a clear agreement in writing, there could be disputes later about how proceeds from the sale should be divided or what happens if one party wants to sell their share.
Does a Declaration of Trust Affect Your Mortgage?
One common question people ask is whether a Declaration of Trust affects their mortgage. Typically, a Declaration of Trust does not change the legal standing of the mortgage or the responsibilities of the mortgage holders. However, mortgage lenders might require you to disclose that a Declaration of Trust is in place. This is especially true if the ownership structure changes from joint tenants to tenants in common, as it can affect the way the property is treated in the event of a sale or transfer.
What Happens if You Don’t Have a Declaration of Trust?
Without a Declaration of Trust, if a dispute arises or someone wishes to leave the arrangement, it may be much harder to settle things. In the worst-case scenario, it could lead to costly and time-consuming legal battles. Without clear guidelines, disagreements over what share of the property each owner is entitled to can arise, especially if one person feels that they have contributed more, either financially or in terms of maintenance.
How Does a Declaration of Trust Work in Practice?
To give you a clearer idea of how a Declaration of Trust works, let’s walk through an example. Suppose two friends, John and Grace, buy a property together. John puts down £50,000 for the deposit, while Grace contributes £35,000, and they decide to split the mortgage 50/50. In the absence of a formal agreement, there could be confusion about how much each party is entitled to if they decide to sell the property. A Declaration of Trust allows them to specify that John is entitled to 58% of the sale proceeds, based on his larger initial contribution. Grace, on the other hand, is entitled to 42% of the sale proceeds. This agreement is legally binding and protects both parties’ interests.
Can You Change or Update a Declaration of Trust?
Yes, it’s possible to update a Declaration of Trust if circumstances change. For example, if one party makes an additional financial contribution to the property, the terms of the original Declaration of Trust may need to be adjusted. This is typically done through a supplementary Declaration of Trust, which references the original document and updates the terms to reflect the new situation.
It’s worth noting that once a Declaration of Trust is signed, it cannot be unilaterally altered by one party. Any changes need to be agreed upon by all parties involved, and the updated terms must be legally formalized.
Do You Need a Solicitor to Create a Declaration of Trust?
It’s always a good idea to seek legal advice when creating a Declaration of Trust. While there are DIY options available, they can be risky, as it’s important that the document reflects your intentions accurately and meets legal standards. A solicitor can guide you through the process, ensuring that the terms are clear, fair, and legally binding.
At Nevada Trust Company, we can help you draft a Declaration of Trust that protects your interests and ensures that your property ownership is structured the way you intend. Our experienced team can work with you to customize the trust and provide guidance on any related issues, such as tax implications or future estate planning concerns.
The Benefits of Having a Declaration of Trust
The primary benefit of a Declaration of Trust is that it prevents confusion and disputes. By clearly outlining the terms of ownership, it protects both parties’ interests, ensuring that they get the correct share if the property is sold, transferred, or inherited. It also protects your rights in the event of a divorce or death.
A Declaration of Trust is a useful and important tool for anyone who owns property with another person. It clearly defines ownership shares, protects your contributions, and sets out what happens if things change. Whether you’re buying a property with a friend, family member, or business partner, a Declaration of Trust can save you from future complications and ensure that everyone’s interests are properly protected.
If you’re considering creating a Declaration of Trust, it’s a good idea to contact us for expert advice. At Nevada Trust Company, we’re here to help you safeguard your assets and plan for the future. For more information, contact us today.
