Declarations of Trust and Cohabitation Agreements

What is a declaration of trust deed?

A declaration of trust deed is a binding agreement between the co-owners of a property which confirms how they own the beneficial interest in the property.

There can up to 4 legal owners of a property but the legal owners of a property do not necessarily have to be the beneficial owners of the property. Nor do they necessarily have to own equal shares in the property.

A declaration of trust deed is an agreement which sits behind the legal title to a property and sets out the true ownership of the property. It will confirm how the proceeds of sale will be divided when the property is sold. If the property is income generating e.g. a buy-to-let, then it can also specify to whom the income is paid and in what proportions. It can also confirm various other different agreements between the co-owners e.g. who is going to pay the mortgage and in what proportions.

Why might I need one?

Some examples of situations where you might need a declaration of trust deed are:

You are buying a property with someone but you are making unequal contributions to the purchase price and/or mortgage.

You are contributing financially to the purchase of a property with the intention of acquiring an interest but are not going to be a legal owner of the property.

You want your respective interests in the property to change over time in accordance with your contributions to the property e.g. mortgage payments, renovations etc and therefore want a mechanism to achieve this and avoid a dispute arising later.

You want to manage your affairs a tax efficient manner e.g. to make use of a spouse’s personal allowance for CGT on selling a property or for the income from a rental property to be paid to a spouse who is not working.

You already own a property and your partner moves in. In the interests of certainty and avoiding a dispute, you should agree on the beneficial interest your partner will have in the property or agree that they will not have any interest at all. Either way this should be documented in writing.

Cohabitation Agreement

If you are buying a property with someone or someone is moving into your property, you may also wish to consider putting in place another document called a cohabitation agreement. A cohabitation agreement is an extremely useful tool to set out the agreements which you have reached in relation to the property and your other assets, as this is often where potential future disputes can arise.

In particular, whilst a declaration of trust deed is conclusive in relation to interests in land, it will not cover assets such as investments, savings accounts, company interests or chattels e.g. cars. A cohabitation agreement can set out what you intend in relation to the ownership of such assets, including those owned in your respective sole names or those bought with joint funds, and would therefore act as the equivalent of a declaration of trust in respect of such assets.

A cohabitation agreement can also deal with whether you are going to maintain a joint bank account or credit card and what would happen in relation to such funds/liabilities in the event that one of you is to move out. It can also deal with how the outgoings on the property are to be paid.

For more information about declaration of trust deeds or cohabitation agreements please contact Lindsay Allen, a solicitor in our Family team.