What is a trust home loan?
A trust home loan is a type of loan specifically designed for property purchases where the borrower is a trust. Trusts are legal entities that hold assets on behalf of beneficiaries, and there are various types of trusts, such as family trusts (discretionary trusts), unit trusts, and hybrid trusts. Trust home loans accommodate the unique legal and financial structures of these entities.
What trust types are acceptable for lenders?
Depending on the policies of the lender and the particulars of your loan application, there may be limitations on the sorts of trusts you can use to apply for a trust home loan. Lenders typically consider the following trust types when approving home loan applications:
- Family Trust: A family trust is established to hold and administer assets for the benefit of family members. The distribution and management of trust assets shall follow the terms and conditions of the trust contract. The trust’s financial health and the trustees’ capacity to repay the loan may be considered by lenders.
- Unit trusts : Unit trusts are types of fixed trusts, where beneficiaries of the trust hold units of the trust – similar to how shareholders own shares of a company. Instead of shareholders, beneficiaries are called unitholders and are typical of property investment trusts or joint ventures where units can be bought and sold by the respective various beneficiaries.
- Hybrid Trust: Hybrid trusts combine elements of fixed and discretionary trusts, giving the trustee a certain amount of control over how the trust’s assets are distributed or positioned while also giving beneficiaries some rights, such as
- Trust Deed Requirements: The trust deed must allow for borrowing and the purchase of property. Lenders will review the trust deed to ensure compliance.
- Guarantors : Often, the trustees or beneficiaries may need to provide personal guarantees to secure the loan.
Benefits of borrowing under a trust
Asset Protection
- Separation of Assets: Holding property in a trust separates the asset from personal assets, providing protection against personal liabilities and creditors.
- Estate Planning: Trusts allow for more structured estate planning, ensuring that assets are managed and distributed according to the trust deed.
Tax Efficiency
- Income Distribution: Trusts can distribute income to beneficiaries in a tax-efficient manner, potentially reducing the overall tax burden.
- Capital Gains: Trusts can manage the timing and distribution of capital gains, optimizing tax outcomes for beneficiaries.
Control and Flexibility
- Management: Trustees have control over the management of the property and can make decisions in the best interest of the beneficiaries.
- Flexibility: Trusts offer flexibility in terms of income distribution and asset management, adapting to the changing needs of beneficiaries.
Drawbacks of a trust home loan
- Setup and Maintenance: Establishing and maintaining a trust involves legal and administrative costs, including ongoing compliance and accounting fees.
- Loan Approval: Securing a trust home loan can be more complex than obtaining a standard home loan due to the additional legal and financial considerations.
Apply for a trust home loan with Gold Finance
You should carefully analyse the benefits and drawbacks of a trust home loan before making a decision, ensuring that it aligns with your financial goals and objectives.
It can also be helpful to consult with trust and mortgage professionals to make well-informed judgments and successfully get financing within the trust structure.
At Gold Finance, we help you ensure that every detail of your trust loan is ideal for maximising the profits of your investments. We know how trusts operate and which kind of trusts lenders will approve.
To speak with a mortgage broker specialising in assisting people in borrowing money for their trust, please enquire online or call us at 0415 571 893.
