What is a declaration of trust?

A declaration of trust is an important legal document when it comes to protecting your rights and entitlements and establishing the terms of a trust. 

There are many reasons why you might benefit from having one, for example, in the event that you decide to buy a property with your partner or friend and want to protect your trust assets and avoid any bad faith moves. 

Declaration of trust: A definition

A declaration of trust establishes a legal trust.

It’s a written document that lays out different aspects of the trust, such as who the trustees and beneficiaries are. 

Such a document can also be used to make adjustments to aspects of an existing trust.

With some legal advice, you can easily set up a trust for your real estate and protect your trust assets. 

What is a declaration of trust used for?

A declaration of trust is used to establish a new trust. Its purpose is to define who the beneficiaries and trustees or fiduciaries are, as well as to set out the terms of the trust.

The trustees can then use the declaration of trust to manage the trust on behalf of the beneficiaries in accordance with the terms stipulated. 

The declaration of trust form also defines any specific circumstances related to the trust, and it must be carried out in accordance with the state laws in which the trust is formed.

An existing trust can also issue a new declaration of trust to alter a rule laid out in the original terms.

The way this happens depends on your state, but there are many resources available to help with this, such as this share transfer agreement template

What is included in a declaration of trust document?

When creating a declaration of trust statement or document, all relevant information should be included.

This depends largely on the particular case or type of trust, but the main elements to be included are:

  • Name of the trustee or trustees
  • Purchase price
  • Every individual’s share in the property
  • The joint intentions of the party
  • Each individual’s entitlements in the event of property sale
  • Whether it’s permissible for one party to buy another party’s share
  • Who pays the mortgage
  • If the mortgage is split, what the ratio is
  • Who pays for insurance
  • Ratio for paying bills
  • Who’s paying for stamp duty
  • The cost of solicitors and surveyor 
  • Furniture ownership
  • Cost of remodel/decorating/refurbishment
  • What will happen in the event of a breakdown of a relationship.

You can include other agreements relevant to your individual needs, like whether the people living in the home can redecorate or have a pet.

Any concerns surrounding finances and the property should also be explicitly stated for the document to be legally-binding.

What is the importance of a declaration of trust for property?

A declaration of trust serves to protect everyone’s interests in a property.

It ensures each individual gets their entitlement regarding their initial investment when the property is sold or a share is sold. 

Without a declaration in place, the job of figuring out who should be repaid and how much is harder.

If and when you decide to sell, you or one of the other parties could find yourselves getting less than you should be entitled to.

A legal document that records everyone’s contributions and beneficial interests gets around this issue. 

If you are an unmarried couple, you can benefit from having a declaration of trust in place.

While unmarried couples may have some rights and legal protections in some countries, this is not universally the case.

Unmarried couples or those in a civil partnership are not guaranteed to have the same legal protections as those afforded to married couples.

Without legal guarantees that each individual gets a fair share of the property in the event of a relationship breakdown, a declaration of trust can serve as protection.

It removes uncertainty by specifying who will be entitled to what at the end of the relationship.

If your name is not on the mortgage, but you have contributed payments towards the property or the upkeep of the property, you may also benefit from a declaration of trust.

Maybe poor credit or school debt makes you ineligible for a mortgage, or maybe you have moved into a house already owned by another party. 

Whatever the situation, a declaration of trust can be used to record the arrangement and ensure that everyone retains any entitlements.

Under declaration of trust (UDT) vs. trust under agreement (UA)

The term UA signals that a trust has been designated as irrevocable.

This designation informs institutions that the grantor and the trustee are separate individuals, with the trustee controlling the assets in the trust.

The trust document may read, “Mary Jane, Trustee of the Lucy Sky Trust UA 20/01/2023.”

This informs anyone reading of the following: 

  1. Mary is the trustee
  2. Lucy is the grantor
  3. Lucy does not control the trust
  4. The trust was formed on January 20th, 2023

When the term UDT appears in a trust instrument, the opposite is true. UDT stands for “under declaration of trust.”

This informs institutions that the trustee and the grantor are the same individual.

In this situation, the grantor maintains control over the assets they’ve placed in the trust, which they can only do if the trust is revocable.

Protect your estate with a declaration of trust

A declaration of trust is a good way to protect your real estate or your stakes in a property and to avoid any miscommunications if and when you decide to sell. 

You can use one of many available online resources, including this deed of trust template, to get you started in your estate planning and start protecting your trust assets.