It is critical that you establish whether the contribution to the trust is a loan or a gift. This is from a tax perspective as well as from an asset protection perspective.

If you borrowed the money to lend to the trust, who is claiming the interest on this loan? If it is you, then you shouldn’t be. If it is the trust then there seems to be no loan agreement in writing so if audited the ATO may deny the interest. If you gifted the money to the trust and you borrowed it then the interest won’t be deductible to either you or the trust.

If you were to become bankrupt at some future date then the loan is your asset and will be recovered and handed over to creditors. If it was a gift it may be protected if made 4 years before bankruptcy (other things to consider too). But since there is no documentation it will be argued that it is a loan.

Imagine what could happen if you died. The executor would have to sue the trustee to get the money back – it would be their duty to do so and they would be personally exposed if they didn’t. But there is no paperwork to determine which it is. This could lead to a court hearing costing the estate tens of thousands. Your children could miss out on the money lent as well as the legal fees. This happened to one of my clients.

Good that the trustee is keeping assets segregated though.

inusure wrote:

( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

Which they coincidentally happen to be selling.

Beware.

PPOR – you sound like you could be messing things up with the trust assets and loans. You need to keep your personal finances and trust finances separate of the trustee could be in breach of trust. You shouldn’t be paying into a trust loan without thinking carefully about it and properly documenting whether it is a loan or a gift.

Trust loans should be in the name of the trustee.

ME Bank recently increasedd their 3 year fixed rates too Could this be the start of the upwards trend?

You can claim many things. Building works may be depreciated though.

Bankwest, Westpac, ANZ, Combank are all tightening up. More will follow no doubt.

That financial planner sounds like a sales person.

The type of advice you seek is not really regulated so either a financial planner, a tax agent, accountant or a broker could give you the advice. It is not the qualification you should be looking at but the style of the advisor.

This is really a question for a lawyyer as there is much more to it than the tax side

I am generally in favour of giving all loans to one bank initially to get a larger discount. Discounts are for the life of the loan so you can gradually refinance a few loans away without dropping rate. But I generally like to keep loans around $2mil per lender.

The risk comes down to missing a loan repayment or 2 and things slowly escalating. If that happens then all your eggs are in the one basket and it will be hard to take control. If you had the loans split up with the different banks you would be more protected. If cashflow got tight you could sacrifice one property and keep paying the rest. The bank would take possession of this one property, sell and repay the loans. If this is not enough they would come after other property you have with them. lastly they would go after other property with other banks, but this would be a long time later and this extra time would give you a chance to sell yourself.

In summary as long as cashflow is ok and business risks are low then you should be fine with one bank, but it wouldn’t hurt to spread them around a little bit – it could only help reduce risk. And the interest rate would probably not be any higher and may even be lower.

Tom resigning as director would likely be a breach of the mortgage agreement for existing loans. All these loans would need to be redone with the new director as guarantor. Lender would also see trustee owning existing properties with loans.

In summary – no won’t extend borrowing capacity, unless perhaps the wife has a much higher income.