Question: Including family trust disbursement as income for serviceability

Hi All,

Bit of a lurker but after having little luck in the real world realm I thought I would ask the question here:

My partner and I have a decent deposit of $270,000 and are looking for finance of approximately $480,000 on a house hold income of $130,000 for a first home, however buying in Melbourne so some flexibility in purchasing power would be ideal.

On top of my permanent full time income of $70,000 and my partners self employed income of $25,000, I also receive an annual disbursement of approximately $35,000 from a family trust. I pay tax on this disbursement and it appears on my tax return. This payment started last year, and the full trust financial documents are available for the finance provider to review as well as a statutory declaration from the trust director in regards to the continual nature of the annual payment.

We have had an initial discussion with ING who have advised that they will not include the trust disbursement in the serviceability calculations. We have engaged a couple of different brokers who have been unable to give any kind of resolute advice on the use of trust income. I'm wondering if anyone here can provide some insight into lenders who may be more agreeable to including this kind of income or brokers in the north of Melbourne who might be better for less traditional situations such as ours? My partner's self employment may be an issue with some lenders but we're hoping to find something to fit our situation.

Thanks for taking the time to read!

 

is @Peter_Tersteeg in that area?

 

I have had clients like this - generally can be taken into account. I had a client I put to Westpac about a year ago.

Becareful of getting the trustee's director to make a statutory declaration. This may be evidence of them breaching their fiduciary duties.

 

I've had a good result with a similar scenario recently. Lenders are concerned using trust distributions but there are a couple of lenders that will use it. I used a mortgage manager to place my client recently.

 

I have had success where we have been able to show stable distributions over multiple years, I think with the stat dec from the trustee it would be possible. It would just be a matter of approaching the right lender.

Be careful approaching lenders yourself with a situation like this, each one may put a mark on your credit file.

 

I would advise legal advice before the trustee considers this. far reaching consequences.

 

History of distributions and the letter from trustee will certainly help. One of the other guys in our office did one a few months back where 100% of income was based on this, knocked it through without issue.

Balancing this requirement vs general lender serviceability policy will be the key here - you may not need to factor in all of this income to get it over the line, giving an additional mitigating circumstance which works in your favour.

 

From the original post I believe the stat dec already exists. But a very good point.

 

The trouble with the stat dec is that it will probably say something along the lines that the trustee guarantees to distribute money to the same beneficary each this. This means the trustee is breaching he duty by not properly considering all beneficiaries. Other beneficiares could get wind of this and sue the trustee or have it replaced - like the recent supreme court matter in NSW with that mining woman. Rienhart.

It also weakens the trust from an asset protection point of view.

There also could be tax issues - does the stat dec amount to a resolution to distibute income. If so could it be taxed in this year. What if there is not enough icnome next year etc.

Perhaps it could be used and then destroyed so no one else knows about it. But it is a risk.

It is also risky to just take what a lender says as acceptable. I often get requests come in to amend a trust - becaue the client's bank has requested it. I always say best not to let a bank dictate the terms of a trust they play no part in.

 

Thank you everyone for your considered responses, at present no statutory declaration exists - I am simply brainstorming what possible documentation lenders may require to prove income of this manner. The trust is limited to family members as beneficiaries and all listed receive the same amount, so I don't forsee any issues with legalities.

I will look into Westpac as Terry_w has mentioned. Are there any other lenders specifically that come to mind that I can research? Thanks again everyone, what a great resource this website is!

 

Why not use a broker?

 

Aside from your loan question, I would strongly consider having the trustee make distributions to your wife/de-facto partner instead of yourself. Would be more tax efficient.