The Pro’s & Con’s of Trust Loans
When you’re looking at upgrading your home, expanding your investment portfolio or moving into more complex property strategies, one structure that often comes up is borrowing via a trust, sometimes called a “trust loan”. Essentially, instead of purchasing or investing as an individual, the borrowing and ownership sits through a trust structure (for example a family/discretionary trust or unit trust) and the trustee takes on the loan on behalf of the trust.
In the Australian market, this route is growing in popularity, but it’s not automatically better or appropriate for everyone. As with all strategic finance decisions, it’s about weighing the benefits against the extra complexity, cost and lender-requirements. Let’s walk through what you need to know.
The Pros
1. Asset Seperation
One of the major draws is that when a property or investment sits inside a trust, it helps separate the legal ownership (held by the trustee) from personal ownership. That means, in theory, personal assets are more insulated from business risks or creditor claims tied to the trustee’s other activities. For self-employed clients or those with multiple business exposures, this structural separation can be a smart layer of protection.
2. Tax Planning Flexibility
Trusts (especially discretionary/family trusts) give flexibility around distributing income and capital among beneficiaries. This can be useful in optimising tax outcomes* for example distributing to beneficiaries on lower marginal rates, or factoring in investment losses inside a trust.
*discuss with your accountant
3. Estate & Succession Planning
A trust can be a vehicle for long-term wealth transmission. Because the trust remains the owner of the asset (even if benefits pass to next generation), this can simplify estate planning and maintain control of assets for the family over time.
4. Potential Borrowing Advantages
In some cases, borrowing through a trust may change how liabilities and assets are viewed by lenders (depending on the setup and the trust’s history). That can open up additional borrowing capacity or portfolio structuring possibilities.
The Cons
1. Increased Complexity & Cost
Setting up a trust structure correctly involves professional fees (legal/accounting), and then ongoing costs for administration, tax returns, trustee resolutions, etc. It’s not a “set and forget” option.
2. Tighter Lending Criteria
Lenders generally see trust structures as higher risk. That means you may face stricter eligibility, lower Loan-to-Value Ratios (LVRs), higher interest rates or more onerous documentation (trust deeds, distribution records, beneficiary lists).
3. Personal Guarantees Remain Likely
Even though the trust is borrowing, most lenders will still require the trustee (or beneficiaries) to give personal guarantees. That means the asset protection benefit can be diminished, you’re still exposed if things go wrong.
4. Fewer Lenders & Less Choice
Not all lenders provide loans to trusts, and those that do may offer fewer product options or less favourable terms compared to standard personal/individual borrowing.
5. Risk Amplification in Borrowing to Invest
Separately (and worth noting for all investors) is the risk inherent in gearing/borrowing to invest. Using a trust doesn’t remove that risk, if your investment falls in value, you’re still liable for the loan and interest.
When Might a Trust Loan Make Sense?
For clients (multiple-property investors, upsizers upgrading via investment carry, higher-net-worth individuals), a trust loan may be appropriate if:
They have sufficient scale (existing portfolio or business) to justify the structure and cost.
They are seeking asset protection (e.g., business ownership + property investment).
They expect to hold the asset long term, want multi-generational planning, income-splitting via beneficiaries.
They are comfortable with the additional administration and potential lending conditions.
When Might It Not Make Sense?
First-home buyers or simple owner-occupiers where the scale and complexity don’t justify the cost/admin.
Clients who want the easiest, fastest approval path and minimal structure, standard individual ownership may suffice.
Situations where the trust has minimal financial history or no strong assets, making lenders wary and borrowing terms unfavourable.
When the key driver is short-term purchase or speculation rather than long-term strategic ownership.
When a property is negatively geared.
Key Questions to Ask If You’re Considering a Trust Loan
What are the setup and ongoing costs of the trust?
Which lenders support borrowing via trusts and what terms do they offer (LVR, interest rate, guarantee requirements)?
What guarantees or personal exposure might still apply?
How will income/capital flows in the trust be managed (and what tax implications)?
Does the trust incur any adverse land-tax, stamp duty or CGT consequences for the property purchase/transfer?
Does the client have the scale, time-horizon and administrative capacity to justify the structure?
Is the investment strategy robust enough (cash-flow, risk buffer, exit plan) to support borrowing via a trust?
Conclusion
Using a trust to borrow and hold property can be a very powerful strategy, especially for clients with portfolios, businesses or multi-generational wealth plans. But it’s not a “magic fix”. The extra cost, complexity and tighter lending criteria mean that it only makes sense in the right circumstances.
As a mortgage broker and adviser, you’ll want to ensure your clients are fully aware of both sides, and work closely with their accountant/legal adviser so the structure aligns with their overall strategy. When done properly, a trust loan can be a strategic lever. When done without full consideration, it can add risk and cost without sufficient upside.