Deed of Trust

A Deed of Trust (also known as a Declaration of Trust) is advisable if you are either intending to own your property in unequal shares or if anyone has contributed towards the property purchase and such contribution needs to be returned in certain specified circumstances. A Deed of Trust can also be used for tax planning purposes in respect to rental income.

There are two types of Deed of Trust; Fixed share or Floating Share.  

Fixed Share;

The declaration may fix the beneficial interests from the outset as a set percentage share in the property or a fixed sum. Your shares may be equal, but they do not have to be. Holding the property as tenants in common in unequal shares may be desirable if you have made unequal contributions to the purchase price of the property. A Fixed Share Deed of Trust is the more straightforward option, but means that you may need to revisit the declaration of trust if there is a change of circumstances in the future, for example, if only one of the co-owners pays the costs of significant improvements to the property. If a fixed percentage is agreed in the property, the proceeds of any sale will be split by these percentages between the parties. If there is a fixed sum agreed, you must also agree how the property’s remaining equity will be split as a percentage.

Floating Share;

Alternatively, the declaration may provide for each person's share to be determined according to their financial contributions throughout their ownership of the property (such as mortgage repayments and the costs of making improvements to the property). This means that the proportions in which the co-owners are beneficially entitled to the property may fluctuate from time to time, depending on who pays what. The calculations will be more complicated than those needed for declarations where the shares are fixed; and require the parties to keep accurate records of their contributions.
Joint Ownership

When buying property jointly, there are different ways in which you can hold the property. However, a Deed of Trust can be created regardless of which method of ownership you choose. 

The two types of ownership are "Joint Tenants" and "Tenants in Common", but these terms have a different legal meaning to the type of tenant who rents a property from a landlord.

Joint Tenants;

If you hold the property as joint tenants, both of you will own the whole of the property. You will not each have a quantified share in the property and will not be able to leave a share of the property in your Will.

If you sell the property, or if you separate, it will be presumed that you both own the property equally, regardless of your respective contributions to the purchase price. On the death of one co-owner, their interest in the property would automatically pass to the remaining co-owner without any further action, under the Rules of Survivorship. The surviving co-owner would then own all of the property and on their death it would form part of their estate. 

Married couples or those in a civil partnership commonly use this method of co-ownership because the Rules of Survivorship make it straightforward to inherit each other's “share” in the property. However, there may be reasons not to become joint tenants. For example, if one of you has made a larger contribution to the purchase price of the property and you would want this to be recognised if the property is sold or if you separate. A joint tenancy is also not suitable if you have a family from an earlier marriage and wish to leave your interest in the property to them, instead of passing it to the other co-owner.

Tenants in common;

If you hold the property as tenants in common, each of you will own a specified share in the property. Unless you have a Deed of Trust, or similar legal document specifying your shares, the Law assumes that your shares are equal.

If you hold as tenants in common, your share of the property can be passed on to another person, either during your lifetime or under your Will. If you do not have a Will at the time of your death, then your share will pass in accordance with the Rules of Intestacy.

Holding the property as tenants in common may be appropriate if you have children from previous relationships and would prefer them to inherit your interest on your death rather than your co-owner.

Deciding on the method of ownership;

How you wish to hold the property must be your own decision and is something that you should keep under review following the purchase of your property. If you decide to hold the property as joint tenants but then wish to split your interests, you can "sever" the joint tenancy and turn it into a tenancy in common at any time. It is also possible for tenants in common to become joint tenants at a later date by entering into a new Declaration of Trust.

Married Couples;

You should be aware that if you are a couple who is either married or in a civil partnership and you own the property as Tenants in Common, your share of the property will not automatically pass to your spouse or civil partner if you do not have a Will, since the Rules of Intestacy will then apply. In addition, if you decide to divorce or end the civil partnership, the Matrimonial Courts will have full jurisdiction to determine the division of assets and whilst they can consider the terms of a Deed of Trust as evidence of the parties’ intentions, the Deed is not binding on the Matrimonial Courts.

What you can do to protect yourself;

Life is very unpredictable, and since it is more common for relatives to gift large amounts towards property purchases, it is advisable to have a Deed of Trust if you do not wish to split everything equally to prevent disputes at a later stage. 

Taylors Legal can help you with drafting a bespoke Deed of Trust to fit your needs and ensure that you do not face difficulties further down the line.

Please get in touch with our Team today at [email protected] to receive more information on how we can help.