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Declaration of a Trust

Depending on the circumstances, there could be implications for inheritance tax on your estate when making a declaration of Trust. It is important to seek specialist legal advice if you are planning to make a declaration of Trust.

A declaration of Trust works alongside your Will – one does not replace the other.

A declaration of Trust specifies the extent of your assets. If you have a 30% interest in a property, then that 30% interest can be gifted in your Will.

Consequently, you cannot gift away any assets which you do not own. Therefore, if you have a 30% interest in a property, only 30% can be gifted under the terms of your Will.

A declaration of Trust can supersede clauses of your Will if you have specified assets in your Will which you later direct under a declaration of Trust.

The beneficial ownership of an asset would follow the legal ownership. Therefore, if two people co-own a property then the law would determine that they each own 50% of the rental income or sale proceeds. What would happen on death of a co-owner would depend on whether they owned the property as “beneficial joint tenants” or “beneficial tenants in common”.

In cases of dispute, it could give rise to what is known as a TOLATA claim if someone has made contributions towards the purchase or renovation costs of a property which they do not own.

A declaration of Trust is created by Deed. Therefore, in order to be legally valid the document must be witnessed by someone who is over the age of 18 and who is independent from the arrangement.

A declaration of Trust can be declared to be invalid due to lack of certainty or enforceability. It would also be invalid if it is not signed as a Deed.

A declaration of Trust would also become invalid if the asset changes hands.

A declaration of Trust must provide certainty and be workable in order to be valid. Therefore, although there is no requirement for it to be drawn up by a Solicitor, it is recommended that the documents are drawn up with specialist legal advice.

Depending on the circumstances, the transfer may be subject to SDLT. It is important to obtain specialist legal advice and/or the advice from an accountant to advise on SDLT implications.

If the declaration of Trust relates to property or land, then the arrangement is usually registered by recording a ‘Restriction’ on the legal title at HM Land Registry. This acts as a layer of protection by making others aware of the existence of a Trust agreement and preventing the property from being transferred without the consent of all beneficial owners. However, the declaration itself is a private document between the parties to it and does not itself need to be registered with the Land Registry.

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