Loan Tip: Named Beneficiaries of a Trust Required to Give Guarantees?

Discussion in 'Loans & Mortgage Brokers' started by Terry_w, 30th Jul, 2021.

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  1. Terry_w

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

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    Most lenders will only want personal guarantees from the directors of a company that is borrowing as trustee. But some lenders actually want every named adult beneficiary of a trust to provide a guarantee.


    Example

    Homer sets up the Simpson Trust with Co Pty Ltd as trustee. Homer is the sole director and shareholder of that company and it is acting as trustee of a discretionary trust.


    Co Pty Ltd applies for a loan with the expectation that Homer will be the only one giving a guarantee.

    The lender comes back and says Marge and Ned are named as beneficiaries of the trust so we want personal guarantees from these people too. Homer argues they have nothing to do with the trust and Ned doesn’t even know that he is a beneficiary of the trust and there is no way they will ask him to give a guarantee and no way that he would even agree to it.


    The lender says – Too bad, that is our policy.


    So just be careful when setting up a trust, especially if the trust will be acquiring property which will be borrowed for.


    We have had success at getting the trust deed amended, by me as a lawyer, and then getting the requirement for the guarantees removed.