A trust is a legal arrangement where an individual or company (the trustee) holds and manages assets on behalf of others (the beneficiaries). The trustee is bound by a legal document called a trust deed, which outlines how the trust operates, including how profits are distributed.
For property investment purposes, several types of trusts may be used, including:
- Discretionary Trusts
- Family Trusts
- Unit Trusts
- Hybrid Trusts
- Self-Managed Superannuation Fund (SMSF) Trusts
- Service Trusts
- Property Investment Trusts
While eligible trusts can apply for home loans, loan options may be limited to lenders experienced with trust structures. Working with a specialist mortgage broker is essential to ensure the structure and finance solution are right for your needs.
Benefits of Buying Property in a Trust
- Tax Planning: Trusts may offer tax advantages by distributing income to beneficiaries on lower tax brackets.
- Asset Protection: Assets held in a trust are not in your personal name, which can offer protection in events like legal action or divorce.
- Estate Planning: Some trust structures enable you to pass on assets to future generations efficiently, helping reduce estate disputes and tax liabilities.
Considerations and Drawbacks
- No Negative Gearing: Unlike personal ownership, trusts generally cannot claim negative gearing benefits, which may affect your tax position.
- Higher Setup & Maintenance Costs: Trusts typically involve greater complexity, leading to higher accounting and compliance costs.
- Specialist Lending Advice Required: Not all lenders accept all trust types. An experienced broker can help you structure your loan appropriately.
What Lenders Look For
When applying for a home loan through a trust, lenders will assess:
- Type of Trust: Some lenders prefer common structures such as discretionary or family trusts, while others are open to more complex options like hybrid or SMSF trusts.
- Credit History: Lenders assess the credit file of the trustee, directors, and beneficiaries—and in some cases, the trust itself.
- Trust Deed: This must clearly authorise the trustee to apply for loans and identify all relevant parties.
- Loan Structure: Loans are often held in the trustee’s or director’s name, while the trust holds the asset. This may enable tax planning strategies with unit or hybrid trusts.
- Beneficiaries as Guarantors: Lenders often require beneficiaries to act as guarantors, which may complicate the borrowing process if there are multiple beneficiaries.
Documentation Required
To progress a trust-based loan application, lenders generally require:
- A certified copy of the stamped trust deed
- A certified copy of the company constitution (if applicable)
- Identification for all trustees, directors, and beneficiaries
- Tax returns and Notices of Assessment for the trust
Expert Guidance Matters
Securing finance through a trust requires careful planning and an understanding of both legal and lending requirements. At Self Employed Finance, we specialise in helping self-employed individuals navigate these complexities. Our team will guide you through the process, ensure your structure aligns with your goals, and provide tailored lending solutions that work for you.
