Question on financing for family trusts

Hi all

Found this website recently and love all the knowledge in here.

I do have a question re obtaining finance via a family trust w Corp trustee - anyone with experience on getting financd under this scenario and knowledge as to how it will be assessed - I.e. standalone or with director or with beneficiaries? I'm considering to set one up and build portfolio there going forward as that would be ideal as a hand me down to my kids. However I don't want it to affect my own serviceability too. As an example If I gave the trust 200k cash to purchase a property of 500k and the rental would be enough to support the loan would banks lend? Would that be originated through a business bank? Appreciate advice in this space thanks.

 

Borrowing through a trust requires a servicing guarantee from all directors of the trustee company (or trustees if the trustees are individuals). There are a few lenders that want a guarantee from all adult beneficiaries, but I wouldn't recommend using them anyway.

It will affect your serviceability, it's about the same as taking a loan in your own name, except you can't use negative gearing against your personal income, so the effect is slightly worse than in your own name (in most cases). Purchasing through a trust is not a way to avoid responsibility for a loan.

With most lenders, trusts fall under their regular residential lending policy, business banking is not necessary (nor recommended). Not all lenders will lend to trust structures, but there are plenty that do.

 

not possible for the company to borrow without a personal guarantee.

This may be of interest:
Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity https://propertychat.com.au/communi...-a-trust-to-maximise-borrowing-capacity.5010/

If you want to pass properties on to your kids personal ownership is the way to go. With trusts you can only pass on control.

 

Would serviceability always be based calculated based on trust + guarantor combined even if Corp trustee/trust is profitable (as an example, Lvr 40% and rental income > repayment I.e. income $25k loan repayment $15k) and thus not reliant on guarantor serviceability wise. Is there a way the corp trustee and trust can be seen as a separate legal entity - My thought is that given a lot of small businesses operate via a trust structure and can easily obtain a business loan shouldn't it be the same concept? I.e. Be treated as another business enterprise? I'm happy to be guarantor but hoping to see if there's a way I can borrow more in the post-APRA world via trust (operating as a legit business in property investment - resi/comm and hopefully development one day) having already hit serviceability roadblocks myself.

 

The corporate trustee is a separate legal entity.to the person. A trust is not a separate legal entity - it is a relationship. So a trust cannot borrow money. It is the trustee that borrows.

There were some lenders that would lend like this without a personal guarantee, but I don't think there would be many around now. It is possible in theory, but I don't know of any lender.

Don't forget the asset protection aspects. You wouldn't want to buy in the same entity that is operating a business because of the high risks.

 

No the trust cannot stand alone. You guarantee the loan, so lenders take into account your personal circumstances when determining the trusts serviceability.

Likewise, as you have guaranteed the loans over the properties held in trust, when lenders examine your future serviceability, they will want to know what other loans you are liable for and you are potentially liable for any loans you've guaranteed.