All Topics / Finance / Loan under a trust

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  • Profile photo of SebastianSebastian
    Member
    @sebastian
    Join Date: 2003
    Post Count: 55

    Hi All,

    Just a question about applying for finance under a trust name.

    I have been doing some research into setting up a trust to own my future IPs. My question is, how does the finance side of things work? Do you have to go as Guarantor for the turst, because the trust does not earn any income as such?

    The trust structure will be a discretionary tust or a Hybrid trust (have not decided on which) with a company as trustee.

    Thanks for any help in advance

    Sebastian

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Sebastian

    It is not very different to getting a loan in your own name. The trustee(s) have to go guarrantor for the loan and will therefore have to supply all of the same info as if they were applying on their own. The lender will also want a copy of the trust deed, and some charge an extra fee for their legal people to ‘review’ the deed.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Stuart WemyssStuart Wemyss
    Member
    @stuart-wemyss
    Join Date: 2003
    Post Count: 598

    Trustee/s will have to provide a guarantee. However, if it’s a corporate trustee then the directors of the trust coy will have to provide the guarantee.

    Some examples of good and bad lenders are:

    1. ANZ will not lend to coys and trusts in its professional package. They only have one expensive product for coy/trust loans.
    2. St George will do it but they will charge additional fees to prepare guarantees.
    3. CBA and NAB are good. They will lend to coys/trusts and not charge any additional fees.

    Cheers

    Stu

    Profile photo of SebastianSebastian
    Member
    @sebastian
    Join Date: 2003
    Post Count: 55
    Originally posted by The Mortgage Adviser:

    The best way around this I have seen is one of my clients who bought all his properties in a company name. There is more choice when using a company name. The shares of the company were all owned by the family discretionary trust. Any dividends were paid to the trust and distributed as the executors saw fit.

    The directors of the company still have to provide all details to obtain the loan. At least the loan and the property were in the company name (which was owned by the trust).

    So would this structure give you the same protection as a trust with corp trustee? What if the company gets sued? The property is up for grabs??

    Also how are so many ppl using trusts if few lenders will lend under a trust name?

    Thanks

    SebSez

    Profile photo of FFCommFFComm
    Member
    @ffcomm
    Join Date: 2004
    Post Count: 627

    “So would this structure give you the same protection as a trust with corp trustee?”

    Not as much protection, but you have to take into account what is your chance of being sued, anyway it’s alot better than being naked (i.e. having it in your own name). The real downside to this kind of structure is the fact you have to pay 30% CGT when you sell.

    The only reason I can see for using this structure is because you really, really want to control where income goes, or perhaps Sebsez can provide more info???

    Rgds.
    Lucifer_au

    Profile photo of SebastianSebastian
    Member
    @sebastian
    Join Date: 2003
    Post Count: 55

    Firstly, thanks for your responses people.

    At this stage I am trying to get a handle on investment structures prior to seeing an accountant (So I at least have a foundation of understanding, which will, hopefully, minimise the chances of my accountant loosing me in a pile of jargon). I’ve read Weath Guardian and I have trust magic on its way to me.

    Lucifer_au,

    The beneficiaries of the trust are only going to be myself and one other associate, so control of income is not a big issue. My major goals are asset protection (in case either one of us gets married or sued or whatever… you never know what will happen in the future!!) and secondly, tax minimisation.

    So the 30% CGT when you sell as a company, what would it be under a trust?

    Rob,

    Yes good point, I see very little situations where the company would get sued.

    Also, the client you speak of, who or what did they use as the trustee of the trust, another company?

    Thanks for sharing about your client’s structure, it is interesting, and one I did not even consider.

    In my situation a discretionary or hybrid with corp trustee looks like it is still the better option for me.

    Thanks Again

    Sebastian

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi again

    I have not had any problems in getting loans with a trust. Even ANZ did them at 95% LVR with LMI on top and no extra fees. Even in my work as a mortgage broker, I have never seen a lender that had a problem with trusts – except for certain lenders on their low doc products:
    Suncorp, ANZ and ING generall will not lend to companies or trusts on their low doc loans, but will on full doc.

    I personally would not use the structure Rob mentioned as companies are not entitled to the 50% discount on capital gains. But if the company is not trading, then it is unlikely to be sued.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of melbearmelbear
    Member
    @melbear
    Join Date: 2003
    Post Count: 2,429

    Seb, I note you mentioned ‘associate’ rather than family member.

    In this instance I would seriously consider a unit trust rather than a discretionary. If anything does happen (like a falling out etc.) then it’s very clear who owns what, and a lot easier for either of you to withdraw ie. sell your units, than it would be having a discretionary trust.

    I’m not sure how the hybrid part would work – if it would solve that problem……

    What I have done when investing with friends, is set up a unit trust, and have my family trust own the units in that trust…

    Cheers
    Mel

    Profile photo of samuroosamuroo
    Member
    @samuroo
    Join Date: 2003
    Post Count: 2

    So the 30% CGT when you sell as a company, what would it be under a trust?

    First, the CGT discount applies which means
    50% of the gain is not assessed for tax.

    The remaining 50% will be taxed at each
    beneficiaries marginal rate.

    eg. B1 is on %30 rate. Half of her distribution
    is not assessed. The other half is assessed at
    30%, meaning she only effectively pays 15% on
    her distribution.

    B2 is on 47%. Which means his distribution is
    effectively taxed at 23.5%.

    On the other hand, your client’s structure means
    all sales are taxed at 30%. The CGT discount
    doesn’t apply.

    Rob O. QLD.

Viewing 9 posts - 1 through 9 (of 9 total)

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