Trust structures can provide investor with tax advantages and asset protection. When assessing the loan they tend to look for:
- The type of trust: Unit trust, Discretionary trust, Family trust, Hybrid trust, Property trust and Self managed Super Fund Trust. Each lender have different assessment rate and preference to the trust that they will lend to.
- The trust credit file: The director, beneficiary , trustee company and trust all have individual credit file.
- The trust deed: The trust deed confirms who the settlor, appointor, beneficiaries and the trustee actually are. The deed will state whether the trust is able to enter in borrowing activities.
- The loan structure: Unit or Hybrid trust can be set up to take advantage of negative benefits where the director is the borrowing entity and the mortgagor is the trust.
- The beneficiaries: Beneficiaries maybe required to provide individual guarantees.
Benefits of a trust
Ability to reduce your taxable income by distributing income to other members of the family with lower taxable income.
Trusts allow you to control and receive income from assets without having them in your name.
This may protect these assets in the event that you’re sued or you go through a divorce.
Some trusts may allow you to effectively pass assets on to future generations without paying excessive taxes or going through estate disputes.
Disadvantage of a trust
No negative gearing
Trust structures do not provide negative gearing options. Property purchased in a trust is generally held for long term.
Accounting fees are higher
Set-up costs and annual accounting fees can be higher when owning property in a trust due to the complexity of the tax returns.