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Declarations of Trust

What is a Declaration of Trust used for?

Declarations of Trust are used to protect interests in property that are not immediately obvious. There are dozens of examples for when they are used, but there are two that come up time and again:

1. Protecting your Deposit when you are buying a house together

A classic example is where two people buy a house together, maybe an unmarried couple, and one of them puts up the money for the deposit.

It's difficult to think about, and no one wants be so negative, but if you are buying a property with your partner:

  1. What if you have to sell the property because you are separating, or divorcing? 
  2. What if one of you cannot go on the mortgage for credit reasons? 
  3. What if something happens to one of you? 
  4. What if the property is only going to be in one person's name, and not the other person's, maybe for tax or other reasons?

In each case, the person who has provided the deposit would naturally want it back. In the 2nd and 4th cases, the person not on the mortgage may not have a legal right to live in the property at all, and can find themselves homeless and having lost their deposit monies.

Lots of people think a Will can cover this situation, but it does not. Lots of people think the divorce process will sort out any problems, but a lot of the time it doesn't. Usually, unless there is evidence to the contrary, any sale proceeds from a property are split 50-50.

2. Protecting your investment in your parents’ home

Another common use is where parents are offered the opportunity to purchase their council- owned home under a right to buy scheme. Often parents cannot afford the cost themselves, so their children pay for the house.

This is potentially very risky for the children. What if the parents go into care? The property could be sold to pay for care fees, and if the children have actually bought the house with their own money they will need evidence of this otherwise they could lose their money.

The simple way to protect the unprotected money in both examples is by making a Declaration of Trust. The Trust states what will happen to the sale proceeds when and if the property is sold.

Let’s say Mr. Jones is buying a house with Miss Smith. He is putting down a 10% deposit of £10,000. If Mr. Jones and Miss Smith later split up, Mr. Smith may lose his £10,000. But if he creates a Declaration of Trust, protecting his money, he should get his £10,000 back when and if the property is sold and then any remaining equity in the property can be split equally between him and Miss Smith.

Declarations of Trust can be set up quickly and at very little expense, and give everyone peace of mind. 

Please get in touch if you want to know more.

I've done a few blogs on Trusts, including "Watching the descendants for the wrong reasons",Nursing home fees" , and "Unregulated Will writers and property Will trusts"