CAn a beneficiery of a trust be used for serviceability

[de nero]

The plan is to do a small development.

The structure I'm planning to use is a trust with 6 beneficieries. 3 people will qualify for the loan, 2 will contribute cash and 1 does all the work.

Do the 3 people who will service the loan have to be directors (of a corporate trustee), or trustees of the trust?

 

[Rolf Latham]

The plan is to do a small development.

The structure I'm planning to use is a trust with 6 beneficieries. 3 people will qualify for the loan, 2 will contribute cash and 1 does all the work.

Do the 3 people who will service the loan have to be directors (of a corporate trustee), or trustees of the trust?

Hi DN

Messy

Few things.

Im assuming you are talking family trust, vs unit trust

Most lenders wont allow a bene of a disc trust to guarantee a loan unless they also have a controlling interest ( ie personal trustee or director of corporate trustee)

The reason becomes obvious when you realise that a bene may never receive an income or capital distribution if the trustees make it so.

Try and avoid getting too specific in the naming of beneficiaries since most trust deeds are written such as to include the gold fish

All in all, you may be better served with a unit trust, in which case its likely that all the income of unit holders can be used toward servicing.

A good source of quality, but simple trust information is the Trust Magic Book which you may be able to get from the library or purchase here

http://www.trustmagic.com.au/index.php?act=viewDoc&docId=5

ta
rolf

 

[Terryw]

Also sounds dangerous as well as messy.

Please consider the results if the project fails. Plan ahead for the "what ifs" - for this project and the effect on other assets. Once you start it is too late to change things if things go wrong.

 

[Foundation]

Agree with Rolf, a unit trust maybe more worthwhile.

I used to manage quite a few unit structures and it should not matter who the directors are as the shareholders in the corporate trustee can appoint anyone. Ideally, it would be those with the interests of the investors in mind.

It does sound like an extremely messy structure in any case. Just ensure the legal side has been checked with regards to recourse for the loan and accountants/tax advisors on how best to structure it. As there are 2 main options:

1. borrow to purchase units in the trust with recourse only to units and property
2. the corporate trustee atf for the trust borrows funds

 

[de nero]

Thanks people,


So the plan is to use a unit trust now. Here's a scenario:

3- 4 unit holders, one of them being myself (currently unemployed).

Its a joint venture where i contribute time and skill to do a renovation, and
subdivision. The other 3 unit holders agree to guarantee a loan in exchange for a share of the profits.

Any thoughts as to how the banks would view this sort of scenario?

 

[Rolf Latham]

Bucket Serviceability

so as long as everyone else is strog she is right to go

ta
rolf