All Topics / Finance / Using trust income to borrow

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  • Profile photo of wilko1wilko1
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    @wilko1
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    I've been trying to chase up a answer for this question at most of the big banks but cant seem to find someone who actually knows what they are talking about.

    My question is Can i use trust income ie family trust to borrow money even if the distributions go to other family members for tax purposes. I thought this would be a pretty clear cut yes but apparently cant seem to find a answer. To elaborate the family trust profit/loss shows a net profit of just under 75,000. So wouldn't this be the figure that the banks are looking at to determine if it has borrowing capacity and not where the distributions end up.  

    Profile photo of Tina PhamTina Pham
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    @tina-pham
    Join Date: 2011
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    Hi wilko1,

    All banks have different policies when it comes to assessing income from your family trust.

    Most will require all adult beneficiaries above 18 to guarantee the loan. This becomes incredibly cumbersome, and of course many beneficiaries do not want to be personally responsible for the family trust’s loan.

    It is important that if you do not want all family members to guarantee the loan to find the right lender that does not require this. In this case only the trustee or director (if company trustee) needs to guarantee the loan in order to use the income from the trust.

    Another issue that may arise is whether the income being distributed is just for tax purposes or are the family members actually relying on this for general living expenses. The bank might be hesitant to use income distributed to a spouse or young children if the spouse is not working or if the amount is minimal.

    Overall, if affordability is dependent on using 100% of the distributions from your family trust then it is best for you to contact a mortgage broker to go through your situation in detail to ensure that your loan will service before submitting your application to any bank.

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
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    Are these adult beneficiaries the ones listed on the trust deed. Currently I only have myself as the sole beneficiary with the trust deed allowing for other family members companies ect to be beneficiary. Antonio if you could pm those details it would be great. 

    Profile photo of RPIRPI
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    @rpi
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    Hi

    Sounds like you are talking about unpaid present entitlements.  Chat to Terry W about that and estates, can be tricky.

    regards

    RPI | Certus Legal Group / PRO Town Planners
    http://www.certuslegal.com.au
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    Property Lawyer & Town Planner

    Profile photo of Jamie MooreJamie Moore
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    Hi Wilko

    Most bank staff aren't equipped to take on queries outside the norm.

    Using trust income for servicing shouldn't be an issue but it wouldn't hurt having a decent finance person look over your numbers and provide advice, particularly one with a knack for complex structures and one that's been giving outstanding advice for a number of years – the Terry W recommendation above is a good one.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Jacqui MiddletonJacqui Middleton
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    Wilko – three words.  Terry's your man.  wink

    Jacqui Middleton | Middleton Buyers Advocates
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of jmsracheljmsrachel
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    Terry's the bomb!

    Profile photo of TerrywTerryw
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    @terryw
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    wilko1 wrote:
    I've been trying to chase up a answer for this question at most of the big banks but cant seem to find someone who actually knows what they are talking about.

    My question is Can i use trust income ie family trust to borrow money even if the distributions go to other family members for tax purposes. I thought this would be a pretty clear cut yes but apparently cant seem to find a answer. To elaborate the family trust profit/loss shows a net profit of just under 75,000. So wouldn't this be the figure that the banks are looking at to determine if it has borrowing capacity and not where the distributions end up.  

    There is no easy answer. If you control the trust by controlling the trustee and appointor roles and the same trust was borrowing again then the income of the trust would generally be taken into account. If you were part of a new trust borrowing then probably would have a harder time.

    Most lender assessors don’t really understand trusts so it is sometimes possible to get things done that are not normally doable with trusts.

    Also I spoke to a lender the other day who would not lend to discretionary trusts at all, but would to unit trusts. There thinking was like the above, with a discretionary there is no guarantee that any one beneficiary would every get anything.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
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    Terry, I guess if this lender was to only lend to unit trusts over discretionary trust. What happens when it's the family trust that owns the units of the unit trust?

    Profile photo of wilko1wilko1
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    @wilko1
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    I guess that would imply that the sole beneficiary ie the family trust gets 100 percent of the income if it owed 100 percent of the units and therefore the family trust would then split up income anyway? Quite strange how they come to these policies.

    Profile photo of TerrywTerryw
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    @terryw
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    wilko1 wrote:
    Terry, I guess if this lender was to only lend to unit trusts over discretionary trust. What happens when it's the family trust that owns the units of the unit trust?

    It depends how deep they dig and who the trustee is of the unit trust. They are not really a lender that would be used anyway and this is an unusual policy.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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