Buying Through a Discretionary Trust

The trustee of the trust is the legal owner of its assets. All legal documents will be in the trustee's name, so what will happen is the title will be in the name of the company and the loan will be in the name of the company or the company as trustee of XX trust. Since the trust and the company have no real substance, any lender will need personal guarantees from real people. Usually they want the director of the trustee to guarantee the loan, but many banks also want more than this and ask for any shareholder's of the trustee to give guarantees and maybe any named beneficiaries in the trust deed (adults only). This is not ideal because some people name relatives in the deed and these evil banks will not proceed until that relative gives a guarantee – and they may know nothing about the trust.

Even once the trust is established the guarantees will still be required. It is only in some non -recourse type loans which they will not be, and these are only for the big stuff.

Anyway, to kick things off if you borrow money you can on lend to the trust, or you can let the trust use your personal property as additional security to borrow the full amount of the purchase. If you lend to your trust the money will remain your's and will be your asset and the trust's liability.

When the trust buys a second property you may be able to use equity in the first one or inject more cash into it. (you will also need to keep injecting cash to fund any shortfalls). You will also need to give a guarantee and the bank will assess you on your incomes and all loans and guarantees. Using a trust provides no advantage in this regard.

Injecting cash means you can keep the properties stand along. Using as security means cross collateralising. There can be differences in this regard.

Borrowing capacity is not helped by the trust – actually it may even be hindered as your income will drop, but the lenders usually just go on the rent received by the trust and your wages so it is usually ok.

You can't say the trust is just for security. A trust is a special relationship where the trustee owns something for the benefit of others. The trust assets don't belong to the trustee and he/she/it cannot treat them as its own. So there are strict legal obligations on trustees to run the trust with the best interests of all the beneficiaries. You have to be careful to make sure your trust is not an artificial scheme.