Declaration of Trust - do I need one?
What is a Declaration of Trust?
A ‘Declaration of Trust’ is something that you should think about if you are buying a property with another person or if you own a property with another person. You will be asked how you wish to hold the property. There are two options. The property can be held as:
• ‘Joint Tenants’, or
• ‘Tenants in Common’.
Joint Tenants
If you own the property as Joint Tenants, then each owner owns the property as a whole, as opposed to having a distinct share. This means that if one owner dies, then the property will pass automatically to the surviving owner, irrespective of what is said in the deceased’s Will. The surviving owner will become the legal owner of the property and can deal with the property as they wish.
Tenants in Common
It is very common for people to hold their property as Joint Tenants, especially married couples. Unsurprisingly this is the most common way of co-owning property. However, there is an alternative known as a ‘Tenancy in Common’.
If people own their property as Tenants in Common then, each party has a distinct share in the property. In this situation, if one owner dies, his or her share does not pass automatically to the surviving owner, but passes according to their Will or under the ‘intestacy rules’ if there is no valid Will.
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Reasons to hold as Tenants in Common
Why would you want to hold the property as Tenants in Common?
Some reasons:
• Unmarried couples who are buying a property together.
• A married couple may not want their share of the property to pass to the surviving spouse outright on death. For example, if the surviving spouse remarries and there are children from both marriages, you may want to gift your share in the property through an appropriate structure which ensures that all the children are treated equally.
• Owners may have made unequal contributions to a property purchase.
If this is the case, then you should document this. In the event of a future sale of the property or if the relationship breaks down an equal division of the sale proceeds is assumed unless otherwise indicated.
• Asset protection reasons, such as future care fees.
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If you wish to own a property as Tenants in Common, then it is important that you think about a ‘Declaration of Trust’.
Declaration of Trust
A Declaration of Trust can clarify:
• The position of each owner if the relationship were to breakdown.
• How future sale proceeds are to be divided.
• Whether shares in the property are determined by the financial contribution of each party during the period of ownership (e.g. home improvements).
• The treatment of future improvements.
• The payment of outgoings relating to the property.
• The procedures for one party to buy out the other owner’s share. This is helpful if communication between owners has broken down.
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Parental Contributions
Increasingly, the ‘bank of mum and dad’ helps children with the purchase of property, but is not named on the legal title. It is important to record if the contribution is a loan or gift, especially in the case of family loans.
If it is a gift, a gift to a child may not be 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 also be beneficial for inheritance tax purposes. The Declaration of Trust records the gift which can avoid future issues within the family and HM Revenue and Customs. In addition, if a parent making a lifetime gift wants to ensure that all their children are treated equally, but cannot make the same lifetime gift to the other children, then provision needs to be included in their Will.
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BE AWARE!
Without a ‘Declaration of Trust’, there is more chance of time-consuming disputes about the division of proceeds when a property is sold especially if the relationship breaks down. This can be costly. 1
If you do enter into a Tenants-in-Common agreement, make sure your Will is also reviewed and is clear on who is to benefit from your share of the property upon your death. 2
If you are a Joint Tenant, but feel that it would be better to own your property as Tenants in Common, then we can help change this. 3
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OUR team
Julie Man Partner, Private Client
+44 (0)20 8541 2040
Julie.Man@russell-cooke.co.uk
How to reach us
Miranda Green Partner, Family
+44 (0)20 8541 2019
Miranda.Green@russell-cooke.co.uk
We can meet you online, in our Kingston office or by appointment at the Long Barn in Cobham. We also have teams in our central London and Putney offices.
Kingston office
Riverview House
20 Old Bridge Street
Kingston upon Thames
KT1 4BU
+44 (0)20 8546 6111
russell-cooke.co.uk
The Long Barn (Cobham)
By appointment only
Down Farm
Cobham Park Road
Surrey
KT11 3NE
+44 (0)20 8546 6111
RUS.COO.271 Brochure address updates_DOT brochure
