Who drafts the declaration of trust?
The legal owner of the property normally drafts the declaration of trust for which they hold on trust for the beneficiary. It is important to note that the declaration of trust:
- does not transfer the legal title
- is not a deed and no reference of a deed can be included on the document
- is signed by the legal owner/s only - the beneficiary does not need to sign it
- is not witnessed (like a deed)
- is not registered as a restriction at the Land Registry
- can be back dated (unlike a deed of trust) subject to evidence being provided to demonstrate that the trust was in existance prior to when it was drafted*
* If you have previously declared income from the property in different beneficial shares in the past then you cannot back date the declaration of trust.
Depending on your circumstances it is most likely you'll get a solicitor to draft a deed of trust compared to a simple declaration of trust and we go into why below.
What is the difference between a declaration of trust and a deed of trust?
A deed of trust:
- is registered at the Land Registry. A restriction is recorded in these terms; “No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court”. This restriction usually means that there is a tenancy in common (joint owners sharing in unequal shares). A declaration of trust is not registered and as such the property could get sold without the benficiaries knowledge.
- is signed in front of witnesses (see how to execute a deed)
- requires mortgage lender consent to be registered. The mortgage lender requires the legal owner to inform them of any party with an interest in the property
- is signed by all parties - both legal owners and beneficial owners
- is suitable for more complex structures. A deed of trust can handle agreeing other intentions around the management of the property and how to sell or buy each other's beneficial ownership.
- is only effective from the date it is executed (signed)
A deed of trust offers greater protection for the beneficiary who is not registered as the legal owner and as such the majority of express trust are drafted as a deed of trust.
How is a declaration of trust enforceable?
On sale the legal owner uses the declaration of trust to distribute the proceeds from the property to the beneficial owner.
The challenge with this though is the beneficial owner has not rights to stop the sale, nor are they made aware of the sale taking place as they do not have a restriction registered at the Land Registry. This is why it is incredibly important to decide whether you feel a declaration of trust offers you appropriate security, or if you should draft a deed of trust instead.
A deed of trust still affirms the beneficial interest split, however with it being registered nd with the additional clauses often included such as selling rights and property management intentions, a deed has a greater protection for all parties involved to ensure their original intentions are handled accordingly.
How much does a Declaration of Trust cost?
Most conveyancing solicitors will draft you a basic declaration of trust at a cost ranging from £240 to £500 Inc VAT. There are however more comprehensive legal agreements that set out not just the deposit share, but also mortgage repayment contributions, what happens if your relationship breaks down and even how to sell when you don't both agree to.
We draft declaration of trusts for our clients and for any joint owners looking to clearly set out their intentions between them and the other tenant in common.
Call our team of declaration of trust specialists on 0333 344 3234 to find out what you should do if you buy your home as tenants in common.
