Key Takeaways
- Family trusts and unit trusts can both borrow for property investment
- Not all lenders offer trust lending - specialist advice is valuable
- Personal guarantees are almost always required from beneficiaries/unit holders
- Trust lending often has stricter LVR limits (typically max 80%)
- Trusts provide asset protection and tax flexibility, not borrowing advantages
- Setup and ongoing costs make trusts uneconomical for smaller portfolios
Trusts are commonly used for property investment due to their asset protection and income distribution benefits. However, borrowing through a trust is more complex than personal borrowing, and not all lenders will participate. Understanding your options is essential before committing to a trust structure.
At Mortgage & Finance Advisory, we help investors arrange finance through trust structures. We know which lenders accept different trust types and how to structure applications for approval.
Types of Trusts for Property Investment
Family Trust (Discretionary Trust)
The most common trust structure for families. The trustee has discretion over how income and capital are distributed among beneficiaries. This flexibility is great for tax planning but creates challenges for lending - lenders want guarantees from all potential beneficiaries.
Unit Trust
Ownership is divided into fixed units. Cleaner for lending purposes as unit holders have defined interests. Often used when unrelated parties invest together, or when a clearer ownership structure is preferred.
Hybrid Trust
Combines elements of both discretionary and unit trusts. Can switch between discretionary and fixed entitlements. More complex and fewer lenders will consider them.
| Feature | Family Trust | Unit Trust | Hybrid Trust |
|---|---|---|---|
| Distribution Flexibility | High (discretionary) | Fixed (per units) | Both options |
| Lender Acceptance | Moderate | Good | Limited |
| Guarantor Requirements | All adult beneficiaries | Unit holders only | Varies |
| Typical Max LVR | 80% | 80% | 70-80% |
| Best For | Family asset protection | Joint ventures | Complex situations |
Trust Lending Requirements
Documentation Needed
- Full trust deed (lenders review specific clauses)
- Certificate of registration (if applicable)
- Trust financial statements
- Personal financials of guarantors
- Corporate trustee documents (if applicable)
Guarantor Requirements
For family trusts, lenders typically require personal guarantees from all adult beneficiaries named in the deed. This can include adult children, even if they have no involvement in the investment decision. For unit trusts, only unit holders need to guarantee.
Trust Deed Review
Lenders review trust deeds carefully. Problematic clauses can prevent lending or require deed amendments. Common issues include unlimited beneficiary classes, restricted trustee borrowing powers, or missing required clauses. Have your solicitor review before applying.
Corporate vs Individual Trustee: Using a company as trustee provides additional liability protection and easier succession, but adds setup and ongoing costs (ASIC fees, company tax returns). For smaller portfolios, an individual trustee may be sufficient.
When Trusts Make Sense
- Asset protection: Separating investment assets from personal liability
- Income splitting: Distributing rental income to lower-taxed family members
- Estate planning: Passing wealth between generations without stamp duty
- Joint ventures: Investing with others while maintaining clear ownership
When Trusts May Not Be Worth It
- Small portfolios: Setup and annual costs may exceed benefits
- Simple situations: Single owner, straightforward tax position
- Maximum borrowing needed: Personal borrowing often achieves higher LVR
- First property: Complexity may not be warranted initially
Client Success
A Geelong family established a unit trust to purchase a $1.2M commercial property. With two brothers as equal unit holders and a corporate trustee, we secured 75% LVR finance. The trust structure allows equal ownership while protecting each brother's other assets and providing clear succession planning.
Frequently Asked Questions
Yes, family trusts (discretionary trusts) can borrow for property. The trustee borrows on behalf of the trust, and beneficiaries typically provide personal guarantees. Not all lenders offer trust lending, so broker expertise is valuable in finding suitable options.
Family trusts have flexible income distribution but require guarantees from all potential adult beneficiaries. Unit trusts have fixed ownership (units) making lending cleaner with only unit holders guaranteeing, but offer less flexibility in income distributions.
Almost always yes. Lenders require personal guarantees from beneficiaries (family trust) or unit holders (unit trust). The trust structure provides asset protection and tax flexibility for the investment, not limited liability for the borrowing itself.
Trusts offer asset protection and income distribution flexibility but add complexity and cost. Personal ownership is simpler and may access better rates and higher LVRs. The right choice depends on your specific situation, portfolio size, and objectives - consult your accountant before deciding.
Need Trust Lending Advice?
We help investors arrange finance through trust structures with access to lenders who understand trusts.
