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Declaration of Trust - with Floating Shares

What is a Declaration of Trust?

A Declaration of Trust, also referred to as a Deed of Trust, is a legally-binding document that records the financial arrangements between joint owners of a property, and/or anyone else who a financial interest in the property.  The idea is that when the property is eventually sold, or if one party wants to buy the other out, it will be clear as to what each party’s interest is worth.

What is the purpose of a Declaration of Trust?

The purpose of a Declaration of Trust is to remove any uncertainty as to what will happen to each person’s money and to avoid disagreements around it in the future. 

Who can benefit from a Declaration of Trust?

A Declaration of Trust is commonly used by:

  • non-married co-habiting individuals (particularly where one of the individuals contributes a greater amount towards the purchase of the property and/or the mortgage repayments etc)
  • individuals purchasing investment property together
  • Individuals where a family member is providing financial help towards the purchase, so that the loan, eg from parents, is ring-fenced and is returned when the property is sold.

What is the difference between a simple Declaration of Trust and a Declaration of Trust with floating shares?

A simple Declaration of Trust sets out the contributions made by each party towards the purchase and specifies the percentage of beneficial ownership that each respective party will hold.  Upon sale of the property, the contributions will be returned to the contributing party and the remaining proceeds of sale split according to that percentage.

However, over the course of ownership of property individual circumstances can change.  Perhaps to start with one person was the higher earner and therefore contributing considerably more towards the mortgage repayments, but over time the second owner’s earnings increase to bring them in line with each other.  A Declaration of Trust with floating shares provides flexibility and takes changes in circumstances into account.

Case Study

We recently acted for a non-married couple who were purchasing their first property together.  Our client injected a significant deposit towards the purchase price from the proceeds of sale of another property, whilst his partner had no money to offer upfront.  However, though at the time she was studying to become a physiotherapist with zero income, her earning potential in a few years’ time was significant and both parties wanted that to be recognised, as her contributions towards the mortgage and associated bills would increase over the years.

Within the Declaration of Trust with Floating Shares document we drafted, we were also able to make reference to any improvements that may take place at the property, as well the costs associated with purchasing the property in the first place (e.g. stamp duty, solicitors costs etc).

The Declaration of Trust with Floating Shares provided a formula for calculating their respective beneficial interests in the property from time to time.

Written by Liz Barnett at Sanders Witherspoon

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. It is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Sanders Witherspoon directly.

Published on 16th July 2019
(Last updated 31st July 2019)

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