For first-time buyers, making significant investments in property can be both exciting and complex. However, without essential legal protections like a Declaration of Trust and a Will, many face unforeseen risks. A Declaration of Trust helps co-owners clearly outline their financial contributions and ownership stakes, safeguarding their investment if circumstances change. A Will, meanwhile, ensures that their wishes for property inheritance are upheld, providing loved ones with clarity and security. This article explores why these legal documents are critical for first-time buyers, highlighting the peace of mind and financial protection they offer.
When purchasing a property with a partner or friend or with financial assistance from family members, a Declaration of Trust is required when owners wish to legally outline their contributions to a property, either by lump sum or portion (such as a percentage or fraction), and their agreement as to how the proceeds are to be distributed on the eventual sale.
A Declaration of Trust is a legally binding document which clearly records the shares of everyone who has an interest in the property and what should happen when the property is sold.
A Declaration of Trust protects everyone’s interests in a property, ensuring each party gets what they are entitled to in line with their initial investment when the property is sold. Without a Declaration of Trust , it is more difficult to determine who should be repaid and how much they are entitled to when the property is sold. This could end up in complex and costly litigation to resolve matters.
Couples who are not married or in a civil partnership do not have any of the legal protections afforded those whose relationship has been recognised by law.
This means there are no guarantees that each party will be treated fairly if the relationship breaks down. A Declaration of Trust can prevent uncertainty by specifying who will be entitled to what should the relationship end.
A Declaration of Trust reduces the risk posed by disagreements. It protects the position of all those who have a financial stake in the property.
Ownership of a property is recorded at the Land Registry. However, that doesn’t take into account the specific proportions each party has contributed to a property, meaning that when a property is sold, some people could find themselves out of pocket without a Declaration of Trust recording their contributions.
Putting a Declaration of Trust in place protects against any disagreements and misunderstandings that may arise later down the line.
What Should be Included in a Declaration of Trust?
As each situation is different, the declaration of trust will be tailored to your requirements. However, the document should contain the following:
- The amount each party has contributed to the deposit on the property
- The amount each party will contribute to the mortgage repayments and other outgoings
- The percentage of the property each party will ultimately own
- How much each party will get from the sale of the property
- How the property will be valued before it is put up for sale
In addition, the document will include your agreement as to how the equitable interest will be treated. If one party has invested more in the deposit, for example, they could receive that larger sum back alongside their agreed share of profits upon sale.
For example:
- Alex and Chloe buy a property. Alex contributes £60,000 towards the purchase price and Chloe contributes £45,000. The remaining funds are from a mortgage. Alex and Chole agree that on a future sale these amounts would be returned to them and the balance of the net sale proceeds will be divided equally between them.
- David contributes £200,000 towards the purchase price of £400,000. Tom contributes £100,000. The remainder of the purchase price is made up of a mortgage of £100,000. David and Tom agree that the net sale proceeds would be split according to the percentages: 62.5% to David, 37.5% to Tom.
- George purchases a property with his father, Arthur. George pays for £50,000 worth of renovation works. A Declaration of Trust is drawn up. On a future sale, George receives the amount paid for works first. After that, the remaining proceeds are split equally between George and Arthur.
The Importance of Making a Will
When you buy a property as tenants in common, you each own a separate share. If one of you passes away without having made a Will , your share of the property (aswell as your other assets), will be distributed in accordance with the rules on intestacy. This can lead to complications and disputes among the remaining co-owners and potential beneficiaries. However, if you make a Will, your share of the property will be gifted as set out in the will.
For more information regarding how Bennett Oakley Solicitors can support you with your Declaration of Trust and Will, please contact our specialist Private Client lawyers today.
