What is a trust?

A trust involves a person or company owning assets on behalf of another person, family or group of people (known as the beneficiaries of the trust).

A trust is an arrangement which allows a person or company to own assets on behalf of another person, family or group of people. These people are known as the beneficiaries of the trust. Assets are owned on behalf of “beneficiaries” and are controlled by a “trustee” who can be either a corporation or a natural person. The trustee is governed by a “trust deed” which sets out the rules that the trustee must follow and also covers how profit is distributed to the beneficiaries.

What is a family trusts?

Family trusts are a type of discretionary trust where the beneficiaries of the trust are all related. For this reason they are often referred to as a “family discretionary trust”.

What are the benefits of a family trust?

Since, a family trust is like a discretionary trust, the income and profits from the trust can be distributed to the children or young adults that have lower taxable incomes.
Discretionary trusts are also used to assist protect assets in the event that one of the family members has a business failure or marriage breakdown.
Some families use a family trust as a method of passing assets to future generations.

Why borrow through a trust?

1. Asset protection
Asset protection is probably the biggest attraction of using a trust. Assets held through trusts are not legally "owned" by the trusts beneficiaries, meaning that trust assets are protected from the liabilities of those beneficiaries. Of course, the lender who lends to the trust will always protect themselves by requiring the appropriate guarantees and indemnities. All other creditors will be blocked from going after the assets of the trust though.

2. Tax benefits
The Government introduced the biggest tax advantage in choosing a trust rather than a company when it created a 50 per cent exemption from capital gains tax for all individuals. This exemption was explicitly extended to the beneficiaries of trusts, but not to the shareholders of companies.

Typical Family Trust structures

Purchasing an investment property through a trust loan

Many people choose to purchase an investment property through a trust arrangement, as this offers tax advantages and asset protection. However, it is essential to arrange a trust loan through an experienced lender or mortgage broker, as many do not know how to structure these to ensure the tax advantages are available.

Additionally, many lenders do not offer trust loans. So, using an experienced mortgage broker to arrange a trust loan for your investment property purchase is a clever strategy, to save time, and to ensure you enjoy the maximum benefits of this type of lending.

How do trusts and borrowing through trusts work?

Homebuyers can set up a trust to borrow finance for a new home where the property will be held by a trustee, who is usually a company or a person. The home buyers will be the beneficiaries of that arrangement, meaning that the property is held on their behalf. The trustee takes up the home loan and guarantees its repayment, offering the beneficiaries more asset protection.

In most cases, borrowing through a trustee company benefits you as the lender as it helps you take advantage of tax benefits while giving you better asset protection. You do not legally own the property as the beneficiary and are therefore, protected from any borrowing liability. Obtaining finance for a home purchase through a trust company usually takes a lot longer, as there are more parties and paperwork involved.

Document checklist for a trust loan:

1. Family trust with corporate trustee (ABC Pty Ltd)
- Trust tax return, Profit & Loss statement, Balance Sheet (Last 2 years or 1 year)
- Directors personal tax return and NOA (ATO notice of assessment) (Last 2 years or 1 year)
- A certified copy of the stamped Trust deed
- ID of all directors and beneficiaries of the trust
- Copy of the company constitution

2. Family trust with an individual trustee
- Personal tax return and NOA (ATO notice of assessment) (Last 2 years or 1 year)
- A certified copy of the stamped Trust deed
- ID of all trustee and beneficiaries of the trust