Family trusts are a form of discretionary trust in which each trust member is part of the same family. The trustee chooses how the income the trust generates is distributed to its beneficiaries.
It’s possible to use your family trust to invest in property. However, you may find that lenders treat family trust loans differently to standard home loans.
Why use a family trust?
Family trusts offer several benefits that you won’t have access to as an individual borrower. For example, you can use the trust to distribute income to younger family members. You can do this to lower your tax bill.
Furthermore, many people use family trusts to bypass traditional estate planning. For example, the trust deed prevents disputes over assets. This may prove useful upon a trust member’s passing.
You can also use your family trust for asset protection. Creditors cannot come after any trust assets if you run into personal financial problems. Furthermore, the trust allows you to protect assets in other circumstances. These may include your marriage ending or your business failing.
How do lenders look at family trusts?
About half of Australian lenders refuse to offer home loan products to family trusts. This is because the trust structure can preclude personality liability.
Instead the lender may refer you to their commercial department, which means higher fees and interest rates. However, we can help you to find lenders that offer home loan products for family trusts.
Do beneficiaries need to act as guarantors?
Often lenders will require that every trust member who is over the age of 18 act as a guarantor on the loan. This ensures personal liability for a family trust home loan.
Each guarantor would need to provide the lender evidence of:
- liabilities and
- any other information required.
This shares the responsibility for the property between each member of the trust, which lowers the risk to the lender.
However, you’ll run into issues if an adult beneficiary refuses to act as a guarantor. Many lenders reject such applications.
Fortunately there are some lenders that do offer family trust loans without requiring all adult members to act as guarantors. A uno adviser can inform you of these lenders, and help you find the home loan you want.
What can my trust borrow?
The amount your trust can borrow varies between lenders. For example, you may be able to borrow more from a lender that understands the family trust structure.
Some lenders offer investment property home loans with loan-to-value ratios of 95%. This may fall to 80% in the case of low-doc loans. Some lenders also offer discounts on professional packages.
Generally you will find it easier to borrow as a family trust if the trustee is an individual rather than a company. Even so, there are still some lenders that allow you to borrow under these circumstances.
What to do next
You should always speak with a financial professional before setting up a family trust. They will be able to provide more information about the trust structure.
You should also do the following:
- Read more information about guarantor home loans;
- Calculate how much you may be able to borrow;
- Live chat with an uno home loan consultant about family trusts.
This information is general in nature and you should always seek professional advice when making financial decisions.