Borrowing in a trust

Discussion in 'Loans & Mortgage Brokers' started by Johnny Cashflow, 1st Dec, 2016.

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  1. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    I have a share in a property with several people. The property was set up as a company trust and in each holder bought a share 1/4 each.

    The property is rented and also makes money from grain harvest.

    The property was paid for in cash, no loans.

    One of the shareholders wants to sell the 1/4.

    If the remaining share holders want to buy this 1/4 would they have to pay with cash or could the trust take out a loan and pay that person out?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sounds like it must be some form of unit trust.
    Is the trustee permitted to mortgage the property and borrow money? It probably is so the trust could borrow to redeem the units, or the unit holder may be able to borrow using the trust property as security and buy the units.

    You need specific legal and tax advise on this one.
     
  3. Ross Forrester

    Ross Forrester Well-Known Member

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    Perth, Western Australia
    If you read your trust deed the the company constitution you will get some guidance about how investors can exit.

    It is good business practice to understand how the syndicate will deal with how an investor can exit (or if they cannot).

    A large part of creating sound investor relationships is to set expectations upfront. These expectations can be documented formally - but I have found the primary benefit is in the discussion and clarity created by getting to what is fundamentally expected.

    A bad investor relationship can crush an amazing investment.