Declaration of Trust
Any mention of trusts or trust funds can have some people confused and conjures up images of complex matters and off-shore bank accounts. Whilst this may be true in some situations, trusts can be used by individuals to protect their interests. It is a document that sets out parties’ intentions as to how they wish to hold property in their names, and can reflect each party’s interest in that property and how it should be dealt with. Property does not necessarily just mean bricks and mortar, but can also be used for items such as cars, jewellery and even investments and bank accounts.
The most common example that we assist with is in instances where parents gift a substantial sum of money to their children so that they can purchase their first property. The child may be moving in with their partner, and they are both to be the registered owners of the property. The Land Registry title register to the property will have both the child and their partner as the registered proprietors.
However a parent may feel uneasy about gifting a large sum of money when the co-owner of the property will be entitled to 50% of the property value, if the relationship breaks up. Such a parent could take steps to protect their interest in the property, by having all parties sign a declaration of trust.
The declaration of trust would reflect that the parent has an interest in the property and could outline what is to happen to the property if property were to be sold, for example if there was a breakdown in the relationship. If the parent gave the child £20,000 towards the house deposit, the declaration of trust could reflect that upon the sale of the property, after repaying any mortgage or outstanding charges, the parent would receive £20,000 from the proceeds of sale. Provided that the property value has not dropped substantially and that there is £20,000 equity left from the sale proceeds after the mortgage has been redeemed, then this ensures that the parents' gift is protected.
We can also advise on the possible Inheritance Tax liability that such a gift could incur.
Even in instances where there is no gift, but between two parties one puts down a higher deposit than the other, or contributes more to the mortgage repayments, a declaration of trust can assist to provide clarity. A declaration of trust can also be useful where an individual has not contributed towards the purchase of the property but pays towards its maintenance and upkeep or to improvements. A declaration of trust can also be used to provide a party with have the right to stay in the property for their lifetime or until the happening of a certain event, for example when a child reaches a certain age.
A declaration of trust is a legally binding document that sets out exactly how a property is to be dealt with. In circumstances that may no longer be amicable, a trust deed can take away any uncertainty and can allow all parties to have security in knowing what they are entitled to. Where circumstances change, a new declaration of trust can be drafted to replace the previous trust deed and can take into consideration how the property should be held going forward.
If you would like to find out more about declarations of trust, or discuss your individual requirements in further detail, our Conveyancing experts will be delighted to help. Contact us today on 01603 693500 or email us using the 'Make an enquiry' form. Appointments available at our Norwich, North Walsham and Sheringham offices.