Borrowing via a trust

Most banks and other lenders offer the option for investors to borrow funds through either a trust or a company. Finance for a trust or a company is usually similar to finance for individuals provided the trust deeds, trust structure or the company structure allows for the entity to obtain finance that is secured by property.

Many investors have set up a trust to manage their incomes and investments via the trust. An accountant is the best person to discuss the suitability of a trust that may suit your specific situation and longer term goals.

Different types of trusts are in existence such as family trusts, discretionary trusts, investment trusts etc.

The Taxation Institute of Australia has a Trust Structures Guide Online which provides comprehensive information on thirteen different trust structures. this guide a suggested application of each type of trust plus parties to the trust structure and issues relevant to the trust such as income taxation implications, capital gains tax implications, asset protection potential, succession planning and investors options. The main two trust structures that are discussed are the Class Discretionary Trust and the Partnership of Discretionary Trusts.

Investors who have set up a trust may have an option, provided the trust deed allows this, to apply for finance through the trust and purchase real estate investments in the trust entity entirely rather than in their own individual names.

A trust with full financials and tax returns available for at least the most recent two financial years could in effect apply for finance with many banks or lenders in its own right. Beneficiaries of a trust are part of the application and can further support an application with their own incomes if and where required.

Provided the overall loan to value ratio is satisfactory applicants could possibly apply for a low documentation loan through the trust to purchase investment property within the trust.

Ability Finance are able to help both companies and trusts apply for finance to acquire or refinance real estate property.

An accountant can assist with advice in relation to setting up a trust or a company and advise if it may be beneficial for the trust to borrow and purchase real estate property. A solicitor or conveyancer can advise on the ownership structure of properties purchased through a trust or company.

Ability Finance can offer the contact details for several accountancy firms who are able to advise in these areas.

It is commonly accepted that the general benefits of using a trust to purchase investment property could be things like asset protection, especially for self employed business owners, distribution of income from an investment and distribution of a capital gain from a sale of an investment. Always seek independent and professional advice in relation to the viability of a trust or a company, purchasing of investments and property and taking on al loan or credit.

An accountant or financial adviser is usually best place to obtain this type of advice.