Can I use equity held in a Trust?

[dreamgirl]

Hiya!

I'm planning to purchase my next property via a Trust, in which I am the guarantor and sole beneficiary. I'm also the sole director of the corporate trustee.

Just wondering if I will be able to access the equity in this Trust later on to purchase another property in my name or in another Trust's name.

Cheers,
dreamgirl

 

[Terry_w]

Hiya!

I'm planning to purchase my next property via a Trust, in which I am the guarantor and sole beneficiary. I'm also the sole director of the corporate trustee.

Just wondering if I will be able to access the equity in this Trust later on to purchase another property in my name or in another Trust's name.

Cheers,
dreamgirl

Surely you are not the sole beneficiary? Bare trust? You are possibly the main beneficiary of a discretionary trust or the sole unit holder of a unit trust?

Basically it comes down to the terms of the trust deed. The trust assets are not yours so you cannot just use them at will like they were your own.

 

[Aaron_C]

Practically speaking it isn't that difficult.

 

[dreamgirl]

Surely you are not the sole beneficiary? Bare trust? You are possibly the main beneficiary of a discretionary trust or the sole unit holder of a unit trust?

Basically it comes down to the terms of the trust deed. The trust assets are not yours so you cannot just use them at will like they were your own.

I'm currently the 'main' beneficiary of a discretionary trust.

 

[dreamgirl]

Practically speaking it isn't that difficult.

I'm worried that the Trust's equity and income will be ignored by lenders and therefore limit my investing options.

 

[alexlee]

I'm worried that the Trust's equity and income will be ignored by lenders and therefore limit my investing options.

Why did you use a trust to buy the property in the first place?

You're also aware that tax losses are quarantined in the trust?

 

[Terry_w]

I'm worried that the Trust's equity and income will be ignored by lenders and therefore limit my investing options.

From a borrowing pov you should be fine as long as the trust deed supports this - it probably does. The main thing is the legal consequences as if you breach your duties as director of the trustee company you could be sued by other beneficiaries of the trust.

 

[dreamgirl]

Why did you use a trust to buy the property in the first place?

You're also aware that tax losses are quarantined in the trust?

Mainly for asset protection.

I'm currently in the process of applying for a loan pre-approval, and deciding whether to purchase in my name or the trust.

Yes, I'm aware that tax losses are quarantined.

 

[dreamgirl]

From a borrowing pov you should be fine as long as the trust deed supports this - it probably does. The main thing is the legal consequences as if you breach your duties as director of the trustee company you could be sued by other beneficiaries of the trust.

Thanks, Terry...

 

[Aaron_C]

I'm worried that the Trust's equity and income will be ignored by lenders and therefore limit my investing options.

No this is not true. They add it all up together - both expenses and incomes for the trust and the directors / guarantors.

 

[D_One]

@Terry, I was under the impression that you cannot setup a trust as you being the only beneficiary, trustee and appointor?

 

[Aaron_C]

@Terry, I was under the impression that you cannot setup a trust as you being the only beneficiary, trustee and appointor?

You can't. However, in this case the trustee is not the OP - his company is.

 

[Terry_w]

@Terry, I was under the impression that you cannot setup a trust as you being the only beneficiary, trustee and appointor?

Yes, you can't, but as per what Aaron says. You could if the company was trustee as the director was the sole beneficiary - not that anyone would do this.

Also people say they are the only beneficiary, but what they mean is they are one of many potential beneficiaries, perhaps the only one named.

 

[dreamgirl]

No this is not true. They add it all up together - both expenses and incomes for the trust and the directors / guarantors.

Thanks, Aaron.

This is the answer I got from Suncorp: "I have been advised that if you purchase in the name of the Trust then if you purchase another property in the name of a different borrower then you wouldn’t be able to use the equity to cross collateralise. Borrowers need to be the same as Trusts cannot provide Guarantees."

 

[Aaron_C]

Yes, you can only cross collateralise properties that are in the same name....but then....why the hell would you want to cross collateralise as a means of extracting equity??? Cash out first, then stand alone loans.

 

[Terry_w]

Thanks, Aaron.

This is the answer I got from Suncorp: "I have been advised that if you purchase in the name of the Trust then if you purchase another property in the name of a different borrower then you wouldn’t be able to use the equity to cross collateralise. Borrowers need to be the same as Trusts cannot provide Guarantees."

Perhaps a better way would be for the trustee to set up a LOC on the existing property and for the trustee of this trust to lend the money to the trustee of the new trust.

 

[dreamgirl]

Yes, you can only cross collateralise properties that are in the same name....but then....why the hell would you want to cross collateralise as a means of extracting equity??? Cash out first, then stand alone loans.

I guess they misunderstood and took my question to mean cross-collateralising. I'm not a fan of 'crossing'

 

[dreamgirl]

Perhaps a better way would be for the trustee to set up a LOC on the existing property and for the trustee of this trust to lend the money to the trustee of the new trust.

Thanks, Terry. I'll keep that in mind...