Trust distributions and servicability

I am trying to understand how trust distributions affect serviceability. If one has a discretionary family trust with corporate trustee setup with myself as beneficiary and distributions are made to me, wife and family company (so rest of distributions are taxed at corporate tax rates)

1) Will only the distribution that is actually distributed to me personally be used in my serviceability calculations or will they include the total trust profits as I am essentially in control of the trust as well as the wife (well that is questionable...) and corporate family beneficiary.?
2) Does it make a difference if the nature of the trust income is rent or from a business, say a property management business/bookkeeping business etc? i.e. will they apply say 80% to distributions if nature of income is rentals?
3) Do the banks generally require 2 years trading history of the trust to confirm this? Thanks.

 

This is one of those questions where it's a big, "Depends".

Firstly, banks will usually want to see 2 years tax returns for the trust. They're probably going to want personal returns as well.

They'll also assess the assets and liabilities from the trust the same way they do in your personal name. The usual 80% of rental income, existing loans at assessment rates, etc.

Distributions can be tricky. If they're all to yourself, wife and kids, they can see that it's all income for your family. If it's going to extended family, brothers, sisters and so on then they probably won't allow these distributions to be assessed as personal income.

How lenders will assess an individual trust for serviceability will depend on the structure of the trust and related entities, how income is distributed, who the beneficiaries are and mostly importantly the history of what's been happening. There's no single answer that's going to apply to everyone.

 

Thanks Peter, sounds very much it is assessed on a case-by-case basis.

 

Trust distributions to adult children and other non loan party family members can be very tricky as most all lenders won't look at the discretion part of the trust. Eg even if the trustee can decide where to send the distributions once they actually distribute to non loan party family members that income is lost for servicing purposes.

 

Bucket company will also depend on who owns the shares of this. If you own them the income could be considered yours for servicing

 

Most Banks consider a discretionary trust as a unreiable source of incoem. Howvera fixed trust gives a right and the ongoing stream maybe appraised as a entitlement. Ihav seen other clients as a sure bet and the lender will eldn to whatever entity nominated.

 

Depends. Distributions are a tough one - it will in many cases depend on history, who the trustee is, family structures, use of funds etc. Lender policy differs immensely in this space - we've put deals through wherein the distributed party had no long term history of payments + no controlling interest (trustee or otherwise) and this was accepted, whilst other banks would count $0 income unless they held the position of trustee.

Seek specific advice as you don't want to rely on general posts on a forum and be potentially left out to dry.