Trust Structure Home Loans: What You Need to Know
Trust Structure Home Loans: What You Need to Know
Trusts are a common business and investment structure in Australia, used for asset protection, tax planning, and estate management. But when it comes to home loans, trust structures can create significant complexity — and many lenders simply don't know how to assess them.
This guide explains how trust structure home loans work, what lenders look for, and how to navigate the process successfully.
Common Trust Structures in Australia
Before diving into the lending implications, it helps to understand the main types of trusts:
Discretionary (Family) Trusts
The most common trust structure in Australia. A trustee has discretion over how income and capital are distributed to beneficiaries. Income is typically distributed to family members to minimise tax.
Unit Trusts
Beneficiaries hold fixed units in the trust, similar to shares in a company. Income is distributed proportionally to unit holders.
Hybrid Trusts
A combination of discretionary and unit trust features.
Self-Managed Superannuation Funds (SMSFs)
A specific type of trust used for superannuation. SMSF lending has its own rules and is covered separately.
Why Trust Structures Complicate Home Loan Applications
Trust structures create complexity for lenders because:
The trust earns income, not the individual. The trustee (often a company) is the legal entity, but the beneficiaries receive the distributions.
Income distributions can vary year to year. In a discretionary trust, the trustee decides how much each beneficiary receives each year — making income assessment difficult.
Retained earnings in the trust. If the trust retains profits rather than distributing them, those earnings may not appear in the beneficiary's personal tax return.
Complex ownership structures. When the trustee is a company and the directors are also beneficiaries, the ownership chain can be difficult for lenders to follow.
How Lenders Assess Trust Income
Mainstream Lenders
Most mainstream banks will assess your income based on the distributions shown in your personal tax return. If the trust distributed $80,000 to you last year and $90,000 the year before, the lender will typically use an average of $85,000.
The challenge arises when:
- Distributions vary significantly year to year
- The trust retains profits rather than distributing them
- You've recently changed your distribution strategy
Specialist Lenders
Specialist and non-bank lenders take a more flexible approach. They may:
- Look at the trust's total income and assess your share based on your ownership percentage
- Consider retained earnings in the trust as evidence of financial strength
- Use BAS statements or bank statements to verify income
- Accept an accountant's letter explaining the trust structure and your income
Buying Property Through a Trust
If you want to purchase property in the name of a trust (rather than personally), the lending process is different again.
Who Can Borrow?
The trust itself cannot borrow money — only the trustee can. If the trustee is an individual, they borrow in their personal capacity as trustee. If the trustee is a company, the company borrows as trustee.
Personal Guarantees
Lenders will almost always require personal guarantees from the directors of the trustee company and/or the beneficiaries of the trust. This means your personal assets are at risk if the loan defaults.
Which Lenders Will Lend to Trusts?
Not all lenders will lend to trust structures. Mainstream banks are more restrictive; specialist lenders are generally more accommodating.
Key factors lenders consider:
- The type of trust (discretionary, unit, hybrid)
- Whether the trustee is an individual or a company
- The purpose of the loan (owner-occupied vs. investment)
- The financial position of the guarantors
Documentation Requirements for Trust Loans
| Document | Purpose |
|---|---|
| Trust deed | Confirms the trust structure and trustee powers |
| Trustee company ASIC extract | Confirms the trustee company's details |
| Trust tax returns (2 years) | Shows trust income and distributions |
| Personal tax returns of guarantors | Shows guarantors' personal income |
| Trust financial statements | Balance sheet and profit & loss |
| BAS statements | Confirms GST turnover |
| Accountant's letter | Explains structure and income |
Strategies for Trust Structure Borrowers
1. Work with a specialist broker. Trust lending is complex. A specialist broker who understands trust structures will know which lenders are most accommodating and how to present your application.
2. Ensure your trust deed is up to date. Lenders will review your trust deed carefully. An outdated or poorly drafted deed can cause delays or rejections.
3. Maintain consistent distributions. If you're planning to apply for a home loan in the next 12-24 months, maintaining consistent distributions from your trust will make your income easier to assess.
4. Prepare a clear structure chart. A simple diagram showing the trust structure, trustee, and beneficiaries helps lenders understand your situation quickly.
5. Consider your guarantor position. If you're purchasing in a trust, ensure your personal financial position is strong enough to support the personal guarantees required.
Common Questions
Can I get a low doc loan through a trust?
Yes. Some specialist lenders offer low doc and alt doc loans to trust borrowers. The documentation requirements are different but the principle is the same.
Can I use trust income to service a personal home loan?
Yes, if the income is consistently distributed to you personally and reflected in your tax returns.
Do I need to disclose all trust interests?
Yes. Lenders require full disclosure of all trust interests, including trusts where you are a beneficiary but not the trustee.
Speak to a Trust Lending Specialist
Trust structure home loans are one of the more complex areas of mortgage broking. At New Vision Financial Services, we have extensive experience helping business owners and investors navigate trust lending.
Whether you're purchasing in a trust, drawing income from a trust, or dealing with a complex multi-entity structure, we can help.
Call 1300 422 506 or book a free 20-minute consultation online.