Legal Tip 352: Trusts without Deeds

A trust established by deed is known as an ‘express trust’. These include unit trusts, discretionary trusts and superannuation funds.

But a trust doesn’t necessarily need a deed. A trust can arise by circumstances. One such situation which is relevant for property investors is where the title is in one name, but someone else is paying the deposit and loan on the property.

In such situations it may be possible to argue that there is an informal trust involved and to change title without triggering stamp duty or CGT.


Example

Lisa and Millhouse are married and want to buy a house. They go to the local broker who says they don’t earn enough to qualify for a loan. But he can get them a loan if Lisa’s mum goes guarantor.

This confuses them but they follow instructions, and it ends up with the 3 of then owning the property as joint tenants.

Several years later mum is about get the pension and is knocked back by Centrelink because she owns part of Lisa and Millhouse’s property and this counts towards the assets test and the income test. It turns out that the mother wasn’t the guarantor but a legal owner.


Luckily, they seek legal advice and find they are able to argue that mum owned her share of the property as trustee for Lisa and Millhouse and is able to come off title without triggering stamp duty, CGT or it to be a disposal for Centrelink purposes.

 

How well does it interact with all the usual lender paperwork where the buyer contracts to say they aren't buying as a trustee?

 

that seems to have no effect with stamp duty. In NSW you can even transfer title without duty where there is a loan on the property if you can show someone else has been paying the loan.

 

Would you still need mortgagee consent to do that?

Probably not off the top of my head, but surely that would trigger the mortgagee calling in their right of possession.

 

Yes new loans would need to be applied for and mortgage discharge when changing title