Declaration of Trust

A legal document used to create a new trust or to confirm the terms of an existing trust

What is a Declaration of Trust?

A declaration of trust is a legal document used to create a new trust or to confirm the terms of an existing trust.

 

Declaration of Trust

 

The declaration of trust acts as the legal contract between the trustee and the beneficiary regarding the administration of the trustee’s assets. As a legal document, the declaration of trust outlines the beneficiaries, trustees, and terms of the trust agreement. It can also be used to confirm the terms of an existing trust.

 

Summary

  • A declaration of trust is a legal document used to create a new trust or to confirm the terms of an existing trust.
  • The declaration of trust outlines the beneficiaries, trustees, and terms of the trust agreement.
  • In England and Wales, the declaration of trust refers to a legal agreement that confirms the true owner of a property.

 

Beneficiaries and Trustees

Before delving into the declaration of trust, it’s important to understand the legal relationship between beneficiaries and trustees. In a declaration of trust, the trustee administers assets on behalf of the beneficiary. Although trustees are responsible for the administration of assets, the underlying assets still belong to the beneficiary.

A trustee is an individual or company that can hold and administer assets on behalf of a beneficiary following the terms of the trust agreement. Common trustees include banks, trust companies, or individuals. In contrast, the beneficiary is the owner of the assets and benefits from increases to the value of the underlying assets.

Under a trust agreement, many forms of assets can be administered, such as cash, securities, or real estate.

 

Analyzing the Declaration of Trust

As a legal document, a declaration of trust is used to establish a new trust or to confirm the terms of an existing trust. When creating a new trust, the declaration of trust establishes the trustees and the beneficiaries of the trust, and clearly states the terms and conditions of the agreement.

It includes aspects such as the purpose of the trust, restrictions governing how the assets will be administered, and agreements between the beneficiary and the trustee regarding the transfer of assets.

After the declaration of trust is executed, the trust is established, and assets will be administered accordingly. The declaration of trust can also be used to confirm the terms of an existing trust.

Once a declaration of trust has been executed, subsequent declarations can be issued to confirm current terms or amend the existing agreement. Depending on the jurisdiction, the declaration of trust can also be referred to as a trust agreement or a trust document.

 

Declaration of Trust - Contents

 

Benefits of Holding Assets in Trust

Many benefits will compel a beneficiary to administer their assets through a trust. Due to the flexibility of trust agreements, trusts can be used in all aspects of financial planning – from retirement to taxes.

One of the benefits of a trust is that assets can be professionally administered and used following the beneficiary’s original intent. For example, a declaration of trust can ensure that funds are only used for certain purposes – such as education or charitable donations.

Trusts can serve a multiple of other purposes – such as reducing income taxes, protecting assets from creditors, or ensuring that assets are distributed to multiple generations of beneficiaries. Due to the flexibility of trust agreements, the declaration of trust can be used to establish trusts for a multitude of financial obligations.

 

Declaration of Trust (England & Wales)

In England and Wales, the declaration of trust refers to a legal agreement that confirms the true owner of a property.

Similar to a deed of trust, the declaration of trust is used by the beneficiary to transfer property to a trustee without having the trustee’s name appear on the deed. Therefore, the declaration of trust can be used to confirm the true owner of a property, as the entry in the land registry may only include the name of the trustee.

For example, Kayla is buying an apartment in London with financial help from her parents. Let’s say that her parents are willing to provide her with 40% of the purchase price in exchange for 40% of any profits received from the property.

By signing a declaration of trust, only Kayla’s name will appear on the deed, but her parents are still legal beneficiaries of the property. If Kayla decides to sell her apartment at a profit, she will need to return 40% of the profits to her parents.

 

More Resources

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

  • Account in Trust
  • Contingent Beneficiary
  • Power of Attorney
  • Asset Protection

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