HI All,
I have a discretionary trust.
Ive heard that named beneficiaries on the trust must give gaurantees on a new loan I may apply for using the trust.
This is a pain as the beneficiaries dont even know they are on the trust and aernt involved in any way.
Would this be the same requirement for all lenders?Is it hard to remove named beneficiaries from a trust? (standard law central trust – internet setup) (I know I should ask law central – still waiting for a response)
Does anyone know the difference between a family trust and discretionary trust?
Thanks also to Cata/property WA for your advice in my last post.
Hi Grant
Interesting post as I have just had the same problem. After discussing with my accountant, I set up a family/discretionary trust also (don’t know if there is a difference between family and discretionary) and put my partner and my son on it as beneficiaries. My lender (Wizard Home Loans) then told me that as my son is over 18 – if he wanted to go for a loan in the future, then my borrowings would be against his name as liabilities.My accountant wasn’t in agreement with this but they spoke to each other and it was decided that the trust be amended (at my cost) to take my son off. This is an area that I do not know anything about and am forced to go on the recommendations of others. Speaking with Brendan my coach, this morning, he didn’t think this was right also. Hence causing me total confusion. Now I have a trust with myself and my partner only on it and I am not sure what the benefits are going to be. Does anyone have any clarity on this?
Thanks
Anita[blink]I was under the understanding that beneficiaries didnt have to be specifically named on the trusts unlesss they are established as Principal Beneficiaries..and that yes as Principal Beneficiaries the kids may have to sign on the dotted line once over 18..
I would defer to Cata’s knowledge on this though..
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorHi Grant7,
I have a copy of Wealth Guardian (a terrific resource explaining financial structuring and the different types of structures we can use including the advantages and disadvantages – all in easy to understand terms; You may want to investigate it further).What my understanding of what it says about Discretionary Trusts (and a Family Trust is a type of Discretionary Trust) is this :
A trust has a Trustee (can be one or more but must be separate legal entities (so an individual or a company)) – this is the entity that makes the decisions and is responsible for the day to day running of the trust.
A trust also has beneficiaries – who receive a share of trust profits (can be an individual, partnership, another trust, company). Beneficiaries must be named in the Trust Deed. The distribution (share or dispersement) a beneficiary receives is declared by the Trustee(s)
The Trustee(s) doesn’t own the trust assets it controls them, and may also be a beneficiary.
If, in securing a loan, the lender requires a guarantee, it will be the Trustee(s) that would make that guarantee. The guarantee would have nothing to do with the beneficiary unless they were also a trustee of that trust.
In short, one person can wear two hats – one as trustee and one as beneficiary, so my take on your situation is that you could have your son on your trust deed as a beneficiary but not as a trustee and his future borrowing ought not to be compromised by the trust’s borrowing.
I know you have checked with several sources already, perhaps armed with this information you can recheck with those advice providers – or have a more thorough read of Wealth Guardian (I don’t get commissions
I just found it a really great resource).Good luck.
Cheers, Jo-anneBeneficiaries can be added and removed but it will depend on the deed how it is done.
Some deeds (the ones I use) allow the addition/ removal of benificaries via a minute entry. Cheap, easy and painless.
Others will need resettling. Expensive, possibly messy and can leave loopholes in the deed, but if done well is ok.
Family Trusts- can only have family members as beneficiaries, sometimes known as Bloodline Trust.
Discretionary Trusts- can distribute income to any person or legal entity that is a beneficiary at the the trustee’s discretion.
For the loans I would suggest you talk to one of the many brokers who frequent this forum.
CATA
Asset Protection Specialist
[email protected]Hi garnt7
how fascinating having beneficiaries unawarei of their interest in your discretionary fund
“This is a pain as the beneficiaries dont even know they are on the trust and aernt involved in any way”how do you handle the tax issues when you distribute profits to them ?
G’day Grant7,
I have had a discretionary trust for over 3years, used it a number of times to get loans, refinancing etc. It is set up with a company as the trustee and i am the only director of the company, as such i am the only one that has to go guarantor, not even my wife who is a principal beneficiary has to. I have our children, church and other non profit organisations as beneficarys and the loans my trust take out have nothing to do with them they just receive distrubutions and if they pay tax they then pay the required tax on their distrubution. Hope this helps.[thumbsupanim]Originally posted by Cata:Some deeds (the ones I use) allow the addition/ removal of benificaries via a minute entry. Cheap, easy and painless.
Sounds like the Best Option Cata
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorHi grant
just wanting to clarifying your discretionary trust.
when you fill in section 58 in the “Trust Return” and fill in the Full name of the beneficiary, their address plus TFN,
why the Tax office doesn’t cross reference it to that beneficiary who has received a distribution from you…..unaware!!what happens then??
Hi HB,
The beneficiaries are unaware they are beneficiaries as they have recieved no income (yet).
The tax issue is quite simple – they pay tax out of the money they recieve at whatever there tax rate is.Cheers
GrantHi All,
Thanks for your comments / input.
My accountant has said that any lender that requires gaurantees from trust beneficiaries is wrong as legally no benficiary can be held liable for the trust debt.
However it seems out of policy some lenders do and some lenders don’t.
The wise old TerryW (broker) has told me to avoid problems it may be best to have no named benificiaries. If you want to distribute to someone just form another trust for them (cheap).The issue is with named (not general benificiaries). The only reason I have them named is that they are not related in any way.
Anita I would have thought that you wouldnt need to name your son in the trust as any trust should automatically allow you to distribute to children / cousins / inlaws / other trusts etc.. as general beneficiaries.
Cheers
Grant
Originally posted by grant7:My accountant has said that any lender that requires gaurantees from trust beneficiaries is wrong as legally no benficiary can be held liable for the trust debt.
just wondering..Who does your accountant say is responsible then for the Trusts debt as the trusts itself is not a legal entity and a company trustee could be a $3 Pty Ltd?
The Banks are all about protecting themselves in a worst case scenario and I can see why they would want someone to gaurantee the loan in a trusts situation
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThe bank would require the director of the Pty Ltd company to go garantor for the loan, and is responsible.
CATA
Asset Protection Specialist
[email protected]This is were is is important to get broad advice from a number of sources. Solicitors and accountants may not realise that many lenders request guarrantees from named beneficiaries. They can still be beneficiaries, just don’t name them specificially. It only complicates things.
Many lenders will try to tie you up with as many guarrantees as possible. Why not? They are simply protecting themselves.
If you have a trust set up with named people, it would appear you are operating a business with those people – that is their reasoning anyway.
Beneficiaries can be added and removed easily, but please be careful. Any changes here could mean that the trust is resettled. This means the old trust dies and a new trust is formed. As such, Stamp duty and CGT on all the trust assets currently held could be payable.
Grant your accountant is correct about the guarrantees and trusts. But if a person willingly signs a guarrantee, then they will be held liable.
Terryw
Discover Home Loans
Parramatta
[email protected]
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thank grant
i see you got a good grasp on the obligations as the trustee of your Discretionary Trust
“The trustee’s overriding duty is to obey the terms of the trust deed and to act in the best interests of the beneficiaries”
its ok …its only the small print
I just found it a really great resource).
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