A Declaration of Trust is an arrangement setting out who shall have the ownership of an asset and be able to benefit from it. This is important if your assets include land or business interests.
A declaration of trust is a binding statement by the legal owner of an asset declaring that he holds the asset for the benefit of the people described within the declaration.
Where two or more people own an asset they can also declare the trusts on which they hold the property for themselves or for others.
The reason this is often a sensible course of action is that it avoids future uncertainty or disputes over ownership and what was intended by the arrangement. It reduces the risk of challenges to a Will if the arrangements were set up during the lifetime as it demonstrates that the person understood the consequences of their decision.
Although declarations of trust are normally associated with land they can be used in respect of other items such as a life policy or pension benefits.
When might you use a Declaration of Trust?
- Property: this is the most common use of Declarations of Trust. If a family member is helping out with a deposit, is this a loan or a gift? Are they buying the property jointly as an investment? Trust or loan documents should be used to document the intentions of the parties in case of misunderstanding in the future.
- Jointly owned property: You can only register 4 names with the Land Registry so if there are more than 4 purchasers a Declaration of Trust by the four registered legal owners will protect the interest of the other equal owners.
- Business interests: There may be a wish for assets to be held on behalf of the business rather than being in your own estate.
A cautionary tale…
One pitfall to be wary of is whether you would trigger a capital gains tax charge on creation if you give away an asset to a trust. Edward Hands & Lewis has in-house tax expertise to ensure that the arrangements you need are kept as simple as possible and with no unexpected tax consequences.
Give us a call if you would like to discuss whether this is appropriate for you.