Declaration of trust vs trust deed

The documents used to lay forth the essential details about the creation of trusts are declarations of trust and trust deeds. They specify who is establishing the faith, who will look after the trust’s assets, and who will benefit from the trust.

In the context of estate planning, “declaration of trust,” “trust deed,” and “trust instrument” are often used synonymously. However, a declaration of trust often materializes when a person acknowledges that they are acting as a trustee for a beneficiary over the property to which they have legal ownership. An individual (the settlor) uses a trust deed or other trust instrument to transfer assets to a third party (trustee), who will retain and manage the assets for the benefit of specific beneficiaries following the trust conditions.

What is Trust Deed?

Trust deeds, also known as trust instruments, are binding legal papers that provide information on the trust’s name, trustee, beneficiaries, and, sometimes, the assets that will be held in the trust. The person who establishes a trust and transfers their assets into it is the settlor. The trustee oversees the assets and maintains legal ownership of them for the benefit of the beneficiaries. The trust may provide payments to the beneficiaries, such as interest from trust assets.

The legal ownership of assets and the beneficial ownership of the same assets are separated through trusts. Beneficiaries have beneficial ownership, whilst the trustee has legal ownership. When assets are placed in a trust, the settlor loses all ownership rights to them unless they are also beneficiaries of the trust. The settlor can provide requirements and guidelines for trust management in the trust instrument. He or she may direct the trustee, for instance, to only issue distributions when a beneficiary reaches the age of 18.

What is a declaration of trust?

A Declaration of Trust is a contract signed when purchasing real estate that is enforceable in court. It details the ownership percentages of each party with interest in the property and what should happen in several different scenarios, such as when all owners agree to sell the property or when one owner wants to buy out another.

The purpose of a declaration of trust

When it comes time to sell the property or a piece of it, a Declaration of Trust ensures that each partner receives what they are legally entitled to by their original investment. It is more challenging to determine who should be reimbursed and how much they are entitled to when the property is sold if there is no Declaration of Trust in place.

Drafting of Trust Instruments: Things to be considered

  1. Those who create trusts should ensure that the trustee properly drafts and signs the trust document. Otherwise, determining whether a trust has been established and who is in charge of it could be challenging.
  2. A legal trust deed guarantees that your desires will be fulfilled as intended.
  3. Work with a lawyer to decide who will serve as the trustee and who you want to receive benefits from the trust if you wish to do so.
  4. Having a plan for the assets you could put in trust is also essential, but you are not required to fund the trust right now.
  5. Money, real estate, jewellery, stocks, bonds, and other items may all be considered assets.
  6. Your lawyer might suggest how to employ a trust to your benefit in your entire estate plan. Your lawyer might also create the trust document.

What information has to be in the declaration of trust?

Every Declaration of Trust is unique, and a competent attorney will customize the deed to take into account the reality that no two financial arrangements are ever precisely same. Nevertheless, some information must be included in every document:

  1. The portion of the property deposit that each party has paid.
  2. Each partner will pay a share of the mortgage payments and other expenses.
  3. How much of the land will each party eventually possess
  4. How per cent of the proceeds from the property sale will go to each party
  5. The method used to determine the property’s worth before it is placed up for sale
  6. Various clauses may be added to these essential details to cover other potential outcomes.

There are also various options available for how equitable interest will be handled. For instance, if one party contributed more to the down payment than the other, they could receive that larger sum and their agreed-upon share of the profits upon sale. Alternatively, one party is making fewer mortgage payments than the other. In that case, the share ratio could be adjusted annually to consider the amount each party has invested as this sum changes.

Trust deed vs Declaration of Trust

When properly drafted, a Declaration of Trust is a contract that must be followed.

It should be noted that in some circumstances a distinction is drawn between a Declaration of Trust and a Deed of Trust, with the former being regarded as a more informal document that only records how shares in a property are split and does not include any additional clauses pertaining to legal ownership or provisions for sale.

But often, both phrases are used interchangeably since a Declaration of Trust typically contains more information than merely how the beneficial interests are divided. In this instance, the document must satisfy the more stringent requirements of a deed to be performed. To be recognized by the law, the Declaration of Trust must meet several needs, just like any other legal document:

  • It must be prepared as a deed (a formal legal document, typically drafted by a lawyer),
  • All parties must be able to show that they agreed voluntarily and fully understood what it entailed, and
  • It must be signed by all parties and witnessed during the signing.

How can Notary Public Dubai assist?

Our team at Notary Public Dubai can assist you with the drafting of trust instruments including trust deeds and declarations of trust and will make sure that they are customized to represent your investment in the property. Feel free to contact our drafting expert if you need any legal drafting services.