IT is increasingly common for couples, family members or friends buying houses together to contribute unequal amounts towards the deposit.

Maybe one party earns more than the other, one purchaser may have inherited a large sum of money from a deceased family member or, as we are seeing more and more, parents are gifting money to their children towards their deposit to help them get a foot on the property ladder.

People, however, don’t often think of what will happen to that gift, or their larger contribution to the deposit, should the relationship come to an end and the property has to be sold. In every instance, where there is an unequal contribution to a deposit, the sensible way to protect those contributions is with a Declaration of Trust. This is a legally-binding agreement which, when implemented, reflects and enforces the financial contributions made by each party involved in the purchase and ownership of a property.

There are a variety of situations where a Declaration of Trust, sometimes known as a Deed of Trust, would be recommended to protect everyone who has contributed. The most common is when two people are purchasing a property together but providing unequal contributions to the deposit or purchase price. For example, if a couple are purchasing a property with the combined deposit amount of £15,000 – with one party contributing £3,000 and the other £12,000. Often people don’t consider what may happen if they were to part ways with their co-owner in the future. In the above situation, if no Declaration of Trust was implemented, all equity would be split equally between the parties.

A Declaration of Trust would prevent this by setting out the percentage share each party owns, or specific amounts to be repaid before any equity over and above this is split equally. This formally documents the amount each party should receive from the sale proceeds.

A further situation where a Declaration of Trust would be invaluable is where there are contributions by parties that are not legal owners, such as parents who have helped with deposits. In this situation, a trust would ensure the gifted amount would be either returned to the purchaser whose family member made the contribution, or would give the donor a beneficial interest in the property so that their contribution could be returned to them on the sale of the property.

Declarations of Trust are useful in a variety of circumstances and, for a fee of about £150, are a relatively inexpensive way to protect your financial contributions.

Contact Andrea Hanna at Jacksons Law Firm on 01642-356567.

n This Legal Expert column has been provided in conjunction with the Law Society.