04 Jul 2024 Podcast: Deep Dive – Borrowing In A Trust

Posted at 05:53h in Podcast by Evelyn Clark

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In this episode, Evelyn dives into the world of buying properties and borrowing through trusts in Australia.

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Discover how trusts can provide benefits like asset protection, tax planning, and succession planning.

Plus, don’t miss the announcement of our upcoming webinars for first-time home buyers and seasoned investors.

Get insider insights from a recent Westpac roundtable on interest rates, and learn the essentials of different trust types and their impact on borrowing capacity.

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Please find a Podcast summary below with the interview highlights:

Deep Dive – Borrowing In A Trust

In this insightful episode of Evelyn’s podcast, she takes a deep dive into the often complex world of buying properties in a trust and borrowing through a trust. With her extensive experience working with investors, property developers, and other clients utilising trust structures, Evelyn delivers a clear, informative breakdown of the topic. Here are the highlights:

Key Highlights:

1. Understanding Trust Structures

Evelyn explains what a trust is: a legal relationship where a trustee holds property for the benefit of beneficiaries.
She details the different types of trustees (corporate and individual) and how they influence the structure and responsibilities of the trust.

2. Types of Trusts

Discretionary Trusts (Family Trusts): Popular for asset protection and tax planning, they provide flexibility in distributing profits among beneficiaries.
Unit Trusts: Often used when multiple parties, such as different families or entities, co-invest. Each participant holds units representing their share.
Self-Managed Superfund Trusts (SMSFs): Discussed briefly, focusing on their use in property purchases and specific borrowing arrangements.

3. Benefits of Using a Trust

Asset Protection: Assets held in a trust are legally distinct from the beneficiaries’ personal assets, safeguarding them from liabilities.
Tax Planning: Trusts offer strategic opportunities for distributing income in a tax-efficient way.
Succession Planning: Trust structures allow for smooth asset distribution, making them valuable for estate planning.

4. Challenges and Disadvantages

Complex Lending Requirements: Fewer lenders cater to trusts, and borrowing terms may differ significantly, including stricter loan-to-value ratios and higher interest rates.
Tax Implications: Trusts can have higher land tax rates in some regions, like Victoria, and may require specialised accounting expertise.
Potential Loss of Control: The trust deed governs decision-making, which can feel restrictive to some stakeholders.

5. Borrowing Through a Trust

Lending options vary significantly depending on the type of trust and trustee. Corporate trustees provide better asset protection but face more limited lending options.
Borrowing capacity considerations are unique for trusts, including the inability to apply negative gearing directly to the trust’s expenses.

6. Practical Tips and Professional Advice

Evelyn emphasises the importance of working with experienced professionals, including accountants, lawyers, and mortgage brokers familiar with trust structures.
Proper setup is crucial to avoid costly mistakes and ensure the trust operates as intended.

7. Real-World Applications

Investors: Trusts enable long-term portfolio building by strategically managing borrowing capacity and isolating assets.
Developers: Trusts are frequently used for individual property developments, ensuring separation of projects and efficient profit distribution.
Estate Planning: Trusts offer a structured and secure way to manage wealth transfer across generations.

Evelyn’s Expertise in Action

Evelyn blends technical knowledge with practical advice, making complex topics accessible for her audience. She encourages listeners to engage with her for personalised guidance and provides actionable insights for those considering or already utilising trust structures for property purchases.

Whether you’re an investor, developer, or someone exploring trusts for future estate planning, this episode provides invaluable information and professional advice to navigate the intricacies of borrowing in a trust.

This episode is a must-listen for anyone keen on leveraging trust structures to optimise their property investment strategy. Be sure to check out Evelyn’s other episodes for more property and finance insights!

Tags:

finance, Lending, mortgage, trust