Trusts being involved in a investment strategy

I appreciate the feedback everyone! It's been really insightful!

 

try these
Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity
Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity


Trust Strategies to Increase Borrowing Capacity
Trust Strategies to Increase Borrowing Capacity

 

Trust Magic 2nd ed

 

Also be aware of Shorten's...sorry Mr Shorten's, proposal to tax all trust distributions at a minimum of 30%.

Of course he has to get in and get it passed but could be quite a large disadvantage to having assets owned by a trust.

 

And use of a trust doesn't have to be as owner of the property. Gift and borrow back lending trusts can be incorporated into a good strategy too.

 

Including a "high risk" relationship?

 

Would not wish that on anyone. One of my reasons (not the main one) for buying in a trust was the hope/wish/perception that if I do get into a situation where I end up with someone like that, I can safe guard my assets.

 

Trusts may be ineffective to defend against family law claims. Specific legal advice should always be obtained regarding this.

Trust can also be a very effective way to shield and protect some people who receive an inheritance too. So that they dont actually inherit.

 

Trusts do not increase your borrowing capacity.

Yes, you can bring on additional directors to a trustee company which will increase the amount the trust can borrow, but this no different from bringing on another person as a co-borrower without a trust.

As losses in a trust cannot be claimed against an individual person's income, personal negative gearing can't be incorporated into the equation. As a result, serviceability is actually lowered by using a trust.

I can think of two lenders have been known in the past to ignore personal guarantees to other entities, so in theory it's possible to use multiple trusts to isolate debt and not disclose or ignore it. This goes back to non-disclosure of liabilities. I suspect that these lenders won't allow people to get away with this loophole in the post APRA lending environment.

There are benefits to using a trust, but improved serviceability isn't one of them.

 

you just contradicted yourself Peter.

And how do you introduce a co-borrower who is not a co-owner, other than a spouse - I don't know of any lender that would allow this.

 

@Terry_w for a future purchase you can add another party which will increase the serviceability of the group. You're mincing words.

Besides, I don't know many investors that would had control of their existing properties to a third party that easily. It certainly occurs at a high level where you've got large corporate style investing happening, but that's already outside the scope of residential serviceability. It's also way outside the scope of most people on this forum who are trying to find ways to increase their personal serviceability for them own personal purposes.

A trust will allow you swap directors in and out at will, it can lead to a lot of creative strategies. But it won't increase an individual's serviceability.

 

I agree that a trust controlled by person X would generally have less borrowing cap that person X buying in their own name.

But trusts add greater flexibility.

Today I was just talking to a client about amending their trust deed to eliminate the need for both husband and wife to give personal guarantees. This will preserve the borrowing capacity of the husband for future loans. This sort of thing is not possible where both are on title. no third party involvement here.

 

Which idiot drafted a trust deed which requires Mum and Dad to give a personal guarantee for every loan?

 

Absolutely trusts have great flexibility. I invest via trusts myself for this reason. If you're self employed you can really get some interesting things happening.

I'm simply arguing that trusts don't increase serviceability. In part because I've had a number of people approach me wanting to use trusts to improve their serviceability, not for asset protection or flexibility purposes.

Even in the example above, serviceability hasn't been improved, only isolated between the wife and the husband. The same outcome could have been achieved by investing separately without the trust. In fact the trust has actually reduced the wife's serviceability.

There is the potential for flexibility in this example. Perhaps when the property if positive geared at some point, the trust might be able to distribute profits between the wife and husband (assuming he's a beneficiary, which you'd definitely hope he is), to get a favourable tax outcome.

 

Some lenders require personal guarantees from all named adult primary beneficiaries of a trust.

 

Serviceability has for the husband because it is not contingently liable for the trustee's debt.

The same out come could not have been achieved by investing separately unless CGT and stamp duty were triggered.