Page 17 - Loan Structure Solutions

experience in dealing with these various structures because I have
seen some terribly messy structures, and borrowers paying nearly 1%
more in interest than they need to (notwithstanding potentially lost tax
benefits).

12) Discretionary trust–don’t compromise asset protection

One of the benefits of a discretionary (family) trust is it provides tax
planning flexibility in that the Trustee can distribute income and capital
to beneficiaries with (often) complete discretion. The other main sited
benefit is asset protection. That is, no one owns a Trust’s assets until
the Trustee makes an election to distribute them. Therefore, if you
were declared bankrupt for example, it’s likely that a Trustee in
Bankruptcy won’t be able to access any property owned by a family
trust (this isn’t iron clad but as a general principal it provides a good
level of protection).

I’m nearly always against cross-securitisation – even more so when an
entity is involved. Therefore, it’s unlikely that I would agree to one loan
(in the Trust’s name) for the entire purchase price plus costs secured
by both the Trust’s property and the home (i.e. cross secured). It is
important that there are two separate loans – one against each
security.

Just to clarify one issue, when I say the loan is to be in the Trust’s
name I actually mean it will be in the Trustees name. The correct name
will be something like “Smith Investments Pty Ltd as trustee for (ATF)
The Smith Family Trust”. The Trustee has to be named as it legally
holds the property (i.e. the title is registered in the Trustee’s name) on
behalf of the Trust.

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