Guarantor of Loans through Corporate Trustee

I would like to clarify who is normally asked to be guarantor of loans that are made through a corporate trustee?

• Director of corporate trustee: I understand all directors will need to be guarantors
• Names beneficiaries: will all banks require all named beneficiaries to be guarantors? Are there any banks that do not require all named beneficiaries
• Appointors for the trust: will appointors need to be guarantors?

Thanks Terry who has provided Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity to help my thinking on this.

 

Thanks Rolf. I'm not trying to add persons to act as guarantor, trying to limit them.

Thinking about who should be the named as beneficiaries in the trust deed. I understand that it may be beneficial to expand the group of named beneficiaries for asset protection, but in doing so if it expands the required guarantors of any loans because any named beneficiaries must be guarantors then would prefer to limit those named as beneficiaries in the trust.

 

Seek legal advice on this. Only one beneficiary needs to be named, yet there could be thousands of unnamed ones.

 

Thanks Terry. A preliminary legal chat suggested that it may be better for asset protection to increase the beneficiaries named. However, I was concerned that this would mean such named beneficiaries would need to guarantee the loan, which is not preferred.

 

You need some professional legal advice.

 

It wouldn't offer any additional asset protection - in fact it would weaken it.

 

Thanks Terry. What I was told was that perhaps it would be better for other family members to be named beneficiaries to enhance asset protection.

The individual who would manage the trust and the person whose borrowing capacity would be assessed could be the director of the corporate trustee (and may not be a named beneficiary or could be a named beneficiary with other family members).

 

The more person's named the more chance one of them will attack the trust. Ideally you would want to keep the trust relatively secret.

A named person has potentially has a higher interest in the trust. They might be a primary beneficiary rather than a secondary beneficiary.

Relationship break downs may also mean they continue to be a beneficiary of the trust yet may no longer be a beneficiary of the family.

 

Thanks Terry, that makes sense.

What if it the named beneficiaries are the parents of the individual that would be the director of the corporate trustee and the one who would have borrowing capacity assessed? That would help protect in any future relationship break down of the individual who would be director of the corporate trustee? This is on the assumption of no concerns with, and full trust of, the parents of the individual.

 

It wouldn't protect any breakdown and wouldn't help on the family law side at all I think. it could if you had no role in the trust.

You should consider the social security effects too

 

So if the individual was a director but not a named beneficiary it probably wouldn't help. Could it be viewed as the parent's trust but just managed by the child of the parents?

In relation to social security, do you mean the social security for the individual, the parents or others and how would this impact that?

 

If they were a director of the trustee they may or may not also be a beneficiary of the trust.

There was a recent case where an independant person was director of a trustee company and 90 year old dad was the sole unit holder of a unit trust. The son allegedly controlled the trust. Son's ex-spouse went for a property settlement arguing the trust assets were property of the marriage. Court said no, but that the trust was a financial resource of the son.

Social security = govt pensions etc. Could be lost if someone or an associate controls a trust or is a beneficiary of a trust

 

Thanks Terry. That's interesting. So the court said that the trust assets were not property of the marriage. However, the trust was considered a financial resource of the son. Therefore, in any case because the trust assets were held to be assets of the son, they would have been considered or counted in determining any family law settlement?

So social security benefits may be lost even through just control of a trust and not a beneficiary.

 

The trust assets weren't held to be assets of the son, but a financial resource he could use. I haven't read the case, only a summary, but perhaps the age of the dad may have been an issue - impending inheritance.

Social security laws are very complex. see ss1207 of social security act onwards.