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About

A Declaration of Trust is a document that outlines the agreement between two parties. It spells out what each person's rights and duties are in various situations. Solicitors can make sure that this document is legally valid and can be enforced if needed.Next steps

How much does a Declaration of Trust cost?

The cost for a licensed solicitor to help with a Declaration of Trust is dependent on many factors including the complexity and specific requirements of the case. On average it is expected to range from £400-£450 but in some cases it could cost as much as £500.

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Declaration of Trust Solicitors

If you are buying or investing in a property, getting married and want to protect your assets, or want to start planning where your assets go when you pass away, a declaration of trust is something you should get familiar with. 

A declaration of trust is a legal document that outlines who owns what and who has to do what when it comes to things like property or investments. It's really handy if you're buying property with someone else or starting a business where you're putting your money together with someone else's.

At Lawhive, our network of property solicitors are experienced in creating Declarations of Trust that give you peace of mind and clarity on your legal position.

Get in touch with our legal assessment team today for a free case evaluation and fixed-fee quote. Our experienced solicitors will guide you through the process and make sure your interests are safeguarded.

In this article, we provide an overview of declaration of trust, covering its purpose, legal implications, tax considerations, and more.

What is a declaration of trust?

A declaration of trust, also known as a trust deed or trust declaration, is a legally binding agreement and document that outlines the rights and responsibilities of individuals (trustees and beneficiaries) around a specific asset or property. 

It sets out the terms under which the asset is held, managed, and distributed among the beneficiaries for both when the owner is alive, and after they pass away. 

What does a declaration of trust do?

A declaration of trust provides a picture of clear ownership. It spells out who owns what, particularly for assets like property or investments, to prevent disagreements or arguments. 

It also ensures that beneficiaries (as outlined in a will) get their fair share of the trust property and that it's managed as the owner intended. This helps with making sure that assets are passed on to chosen beneficiaries smoothly when the owner(s) pass away.

Not only this, but a declaration of trust can help to manage assets involved and often sets out how the trust property is used and distributed, including any rules or instructions for the trustees.

Plus, as a bonus, it may help to lower tax bills by organising asset ownership and distribution in a tax-efficient way.

When might I need a declaration of trust?

You might require a declaration of trust when purchasing property or investing with others to specify each person's share and rights, whether it's a lump sum or a portion like a percentage. If one person contributes more money towards buying or maintaining the asset than the other person, a declaration of trust protects that investment.

For instance, let's say you're purchasing a house with your partner, but you're putting in more money for the deposit. A declaration of trust can outline the percentage of ownership for each person and what occurs if the relationship ends and the property is sold – you receive back the percentage of money you've contributed.

Or, consider a business scenario. You're starting a business venture with friends or colleagues. A declaration of trust can detail each person's share of ownership, duties, authority in decision-making, and what happens if someone wishes to exit the business.

Also, a declaration of trust is drawn up to safeguard assets and make sure they are transferred smoothly and without dispute to the selected beneficiaries after death.

What is in a Declaration of Trust?

A typical declaration of trust includes:

  • Identification of parties: Names and details of the trustees and beneficiaries involved.

  • Description of asset: Detailed description of the asset covered by the declaration, including any relevant identification numbers or legal titles.

  • Ownership shares: Specification of each party's share or interest in the asset, expressed either as a percentage or in specific terms.

  • Management and distribution: Terms about the management, use, and potential sale or distribution of the asset, including any restrictions or conditions.

  • Trustee powers: Powers granted to the trustee(s) to manage and make decisions regarding the asset on behalf of the beneficiaries.

  • Succession provisions: Instructions for the transfer or distribution of the asset upon specified events, such as death, incapacity, or reaching a certain age.

How long does a declaration of trust last?

The duration of a declaration of trust can differ based on what's stated in the document.

Often, it stays valid until a particular event happens, like the death of the owner(s) or the sale of the asset. Yet, it can also be cancelled or changed if all parties agree.

Is a declaration of trust legally binding?

Yes, once everyone involved has signed it, a declaration of trust becomes a legally binding document. It lays out legal duties and responsibilities for trustees and beneficiaries, and not following its terms can lead to legal consequences.

However, during a divorce, the family court might not take it into account when dividing financial assets.

Can a declaration of trust be overturned?

A declaration of trust can be disputed in court and, if there are reasons like fraud, undue influence, or incapacity when it was made, a court might cancel it.

Also, if things change or people's intentions shift, they can amend or cancel a declaration of trust through legal processes, like making a new declaration which overrules the old one.

It's important to get legal advice if you think a declaration of trust should be cancelled.

What are the tax implications of a declaration of trust?

A declaration of trust can have various tax implications depending on the circumstances. 

Stamp Duty Land Tax (SDLT)

When property is transferred or shares in a property are divided under a declaration of trust, SDLT may be payable. The amount depends on the value of the property and the specifics of the arrangement.

Capital Gains Tax (CGT)

When transferring property or assets using a declaration of trust, there might be Capital Gains Tax (CGT) to pay if it's seen as a sale for tax reasons. The tax you owe can change based on things like if the property is your main home or an investment property.

Inheritance Tax (IHT)

If the declaration of trust involves transferring assets between family members, there may be implications for inheritance tax.

Gifts made during a person's lifetime can be subject to IHT if certain conditions are met.

Income Tax

If the trust generates income, such as rental income from a property, the trustees may be liable to pay income tax on behalf of the trust.

Annual Tax on Enveloped Dwellings (ATED)

If the property held in the trust is a high-value residential property, ATED may be applicable, and the trustees may need to register and pay the annual charge.

Tax Efficiency

A well-structured Declaration of Trust can sometimes be used to optimise tax planning, such as by allowing income or gains to be distributed among beneficiaries in a tax-efficient manner.

Does a declaration of trust affect a mortgage?

A declaration of trust can impact a mortgage, especially in cases of shared or co-owned property.

While it's uncommon for lenders to object to a declaration of trust, it's important to inform both your conveyancer and your chosen mortgage lender if you have one.

The declaration may detail each party's financial contributions and their responsibility for mortgage payments, along with any plans for selling or transferring the property in case of default or foreclosure.

Declaration of trust and joint tenants

In the context of joint tenancy, owners have equal rights to the property.

When one owner dies, the property will automatically pass on to the surviving owner, and then onto the beneficiaries as stated in the will when they subsequently pass away. This is why it is vitally important to address this when setting up a declaration of trust and make a will at the same time. 

This can help prevent disputes and clarify ownership rights among joint tenants after both owners have passed away. 

Declaration of Trust and Tenants in Common

In a tenants in common arrangement, property owners have distinct shares of the property.

A declaration of trust can specify each co-owner's share or interest in the property, as well as their rights to occupy, use, or sell it.

When one owner dies, their share doesn't automatically transfer to the other owner – it's divided according to the will's instructions among the beneficiaries.

Do cohabiting couples need a declaration of trust?

Yes, cohabiting couples can benefit from a declaration of trust, especially if they jointly own property or assets.

It can help clarify each partner's ownership rights, financial contributions, and responsibilities, as well as provide protection in the event of separation, death, or other life events.

What happens to a declaration of trust if you get married?

Marriage or civil partnership can affect a declaration of trust, particularly if the asset covered by the trust becomes marital property or is subject to matrimonial laws. 

In such cases, the terms of the trust may need to be reviewed or amended to reflect the changed circumstances and the interests of both spouses.

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How much does a declaration of trust cost?

The price of making a declaration of trust can vary based on factors like how complicated it is, whether legal experts are involved, and if you need extra services like tax advice or property valuation.

It's a good idea to get a quote from a solicitor to know exactly how much it will cost.

At Lawhive, our team of property solicitors provides drafting services for a declaration of trust at a fixed fee starting from £429.

Contact us today to get your free no obligation quote and case evaluation.

Can I draft my own declaration of trust?

You can create your own declaration of trust, but it's advisable to consult a legal expert to make sure it's legally sound, thorough, and suited to your situation.

A solicitor can help you draft the terms of the trust and handle any potential problems or special situations.

Is a declaration of trust recorded with the Land Registry?

A Declaration of Trust can be mentioned on the title deeds as a restriction. However, the actual document isn't filed with the Land Registry, so its terms stay confidential. Anyone with an interest in the property, but not listed as an owner, won't be shown on the title deeds.

However, it is important to keep a copy of the declaration for reference and to ensure compliance with its terms.

When should you get a declaration of trust?

You should consider obtaining a declaration of trust whenever you are:

Buying property: If you're buying a property jointly with someone else, especially if you're not contributing equally to the purchase price, it can clarify each person's ownership rights and financial interests in the property.

Investing in property: When investing in property with others, it can outline the ownership structure, responsibilities, and profit-sharing arrangements to avoid disputes in the future.

Getting married or entering a civil partnership: If you're getting married or entering a civil partnership and wish to protect assets acquired before the marriage or partnership, it can specify each partner's ownership rights and financial interests.

Starting a business: When starting a business with others, especially if you're pooling resources or making unequal contributions, a declaration of trust can clarify ownership stakes, profit-sharing arrangements, and responsibilities.

Planning for inheritance: If you want to ensure that specific assets are passed on to certain beneficiaries after your death, it can be used to set out your wishes and protect your interests.

Co-owning assets: Whether it's a property, a valuable item, or financial investments, it can define the co-owners' respective rights and obligations regarding the asset.

Protecting financial interests: If you're loaning money to someone or contributing funds to a joint venture, it can safeguard your financial interests by outlining the terms of the agreement and the repayment terms.

Clarifying relationships: In complex family situations or blended families, it can help clarify relationships, inheritance rights, and financial arrangements to avoid misunderstandings and conflicts.

What is the difference between a will and a declaration of trust?

Although both a will and a declaration of trust deal with asset distribution, they have distinct roles and legal foundations.

A will outlines how assets are distributed after death, whereas a declaration of trust determines ownership rights and responsibilities while the owner is alive, with instructions for succession and management after death.

What is the difference between a declaration of trust and a trust deed?

The terms "declaration of trust" and "trust deed" are commonly used interchangeably to describe the same document that sets up a trust.

However, "trust deed" can also specifically refer to a legal document used for creating a trust, especially in the context of estate planning or protecting assets.

How Can Lawhive Help?

Lawhive's network of property solicitors provides can help with drafting, reviewing, updating, and resolving disputes related to declarations of trust.

Our skilled solicitors offer personalised advice to ensure your interests are safeguarded and your goals are met.

Reach out to us today to discuss your needs and learn how we can assist you with your declaration of trust requirements.

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