If you are purchasing a property or looking at how to protect your contributions to a property (either at the time of purchase or subsequently), you have probably seen references to a ‘Declaration of Trust’.
What is a Declaration of Trust?
A Declaration of Trust is a legally binding deed which confirm yours and your partner’s respective shares in a property. Please note a Declaration of Trust must be prepared properly to be legally binding.
Your interests can either be calculated on a percentage basis or in specific monetary shares (if for example you wish to ‘ring fence’ a sum gifted to you by a parent or grandparent).
In the unlikely event your relationship breaks down or one of you die, your respective interests in the property will be distributed in accordance with the Declaration, so it is vital you are properly advised as to the implications of the Declaration.
What is an enhanced Declaration of Trust?
If you are anticipating making further contributions to the property, either as a lump sum repayment of the mortgage or by undertaking improvement works, you should consider putting in place an enhanced Declaration of Trust.
An enhanced Declaration would provide for each partner to have ‘floating’ shares in the property, which would vary if you made a subsequent contribution over a specified sum.
If for example, you spent £10,000 fitting a new kitchen in the property, your share in it would increase accordingly. Without providing for floating shares, yours and your partner’s shares in the property will be fixed regardless of any further contributions.
Will it protect me if my partner stops paying the mortgage or bills?
In a nutshell, no. Generally, both owners of a property will have joint and several liability to pay both the mortgage and utility bills. This means that if your partner stops paying the mortgage or utility bills, you could have full liability for all repayments, interest and charges.
If you wish to cover issues such as the payment of property outgoings, mechanisms for what should happen on relationship breakdown or death, or the various claims available to unmarried partners, it is vital you put in place a Cohabitation Agreement.
To read more about Cohabitation Agreements, click here.