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Family trusts, unit trusts and hybrid trusts hold a large share of Australian business and investment property. Lending to them is normal business for private lenders. The extra step is the trust deed.
Who actually borrows
The trustee is the legal owner of trust property and is the party named on title. When a trust borrows, the trustee signs the loan and the mortgage, and is personally liable for the debt. The trustee has a right to be indemnified out of trust assets, and the lender relies on that right to reach the trust property. If the trustee has acted outside its powers, that indemnity can be lost, which is why lenders are careful.
What the lender looks for in the deed
- Power to borrow. An express clause allowing the trustee to borrow money.
- Power to mortgage or charge trust assets.
- Power to guarantee, if the trust is supporting another entity’s loan.
- The trustee’s identity. The current trustee matches the title and any change of trustee was done by deed.
- Vesting date. The trust does not end during the loan term.
- Variations. Every deed of variation, in order, stamped where the state requires it.
- The appointor. Who can remove the trustee, because that person controls the trust.
Who signs and guarantees
| Party | Role |
|---|---|
| Trustee | Borrower and mortgagor, in its capacity as trustee and usually in its own right |
| Directors of a corporate trustee | Sign under section 127 and usually guarantee |
| Appointor or controlling beneficiaries | Sometimes guarantee or acknowledge |
| Unit holders, in a unit trust | Often consent or guarantee |
Purpose matters
Trust borrowing on this site is for business and investment purposes. The lender will ask what the money is for and how it benefits the trust. Where the funds are going to a related company, see borrowing against property held in a different entity.
Common delays
- The original deed cannot be found. A certified copy is usually acceptable. A lost deed is a real problem and needs legal help.
- An individual trustee was replaced by a company but the title was never updated.
- The deed is an old template with narrow powers.
Products used
Trusts use the same products as companies: second mortgages, caveat loans, first mortgages and equity release. More on how trusts are assessed is on the funding for trusts page. General information only. Your solicitor should confirm what your deed allows.
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What if the trust deed has no power to borrow?
The deed may be able to be varied, if it contains a power of variation. That needs a solicitor and can have tax and duty consequences, so get advice before changing anything.
Do beneficiaries have to sign?
Not usually for a discretionary trust. Lenders may ask adult beneficiaries who control the trust, or unit holders in a unit trust, to guarantee or consent.
Can a trust get a caveat loan?
Yes. See the separate answer on caveat loans for trusts for how speed and the trust deed review fit together.