Family trust Loan: How it works, risks, and rules
Introduction
Thinking about buying a home through your family trust? While a family trust can be used to purchase or refinance property in Australia, loans taken out in a trust structure are assessed very differently to standard home loans.
Lenders apply stricter rules, require additional documentation, and closely examine not just the property, but the trust itself, the trustee, and the individuals behind it.
In many cases, borrowing through a family trust can affect:
- Borrowing capacity,
- Interest rates,
- land tax outcomes, and
- Approval timeframes.
Understanding how family trust loans work, the key risks involved, and the lender rules you need to meet can help you avoid costly mistakes and delays.
In this blog post, we explain how family trust loans work in Australia, what lenders look for, and what you should consider before applying.
Key takeaways
- A family trust loan allows a trustee to borrow while the trust owns the property.
- Family trust loans are assessed more strictly than standard home loans.
- Lenders assess the personal finances of trustees and guarantors, not just the trust.
- Personal guarantees are almost always required for family trust loans.
- Negative gearing losses cannot be used personally when borrowing through a trust.
- Family trust loans are not suitable for short-term property strategies.
- Early planning and correct trust structure are critical to approval success.
What is a family trust?
Before diving into family trust loans, it is important to understand the underlying structure: the family trust itself.
A family trust (a type of discretionary trust) is a legal arrangement where a trustee holds assets for the benefit of beneficiaries, who are usually family members.
The trust is governed by a trust deed, and the trustee has discretion over who receives income or capital from the trust each year.
Key features:
- The trust (not individuals) legally owns the assets
- Trustees manage assets and distributions
- Beneficiaries receive income at the trustee’s discretion
- Trusts lodge separate tax returns with the ATO
What is a family trust loan?
A family trust loan is a home loan where the trustee borrows on behalf of a family trust rather than an individual. The trust owns the property, while lenders assess the personal finances of the people behind the trust.
While family trust loans are most commonly used to purchase investment property, they may also be used for:
- Acquiring commercial or mixed-use property held by the trust, such as offices, warehouses, or shopfronts
- Refinancing existing trust-held property loans to reduce repayments, change the loan structure, or improve cash flow
- Funding renovations or improvements to residential or commercial property owned by the trust
- Purchasing business premises where the trust forms part of a broader business or investment structure
- Consolidating investment-related debt held within the trust into a single facility
How a family trust loan is different from a normal home loan?
Although both are property loans, a family trust loan is assessed and structured differently from a standard home loan.
| Family trust loan vs a normal home loan | ||
|---|---|---|
| Feature | Family trust loan | Normal home loan |
| Legal borrower | Trustee on behalf of the family trust | Individual borrower |
| Property ownership | Owned by the family trust | Owned in personal name |
| Assessment focus | Personal finances of trustees and guarantors | Borrower’s personal income and expenses |
| Personal guarantees | Almost always required | Rarely required |
| Deposit requirements | Often higher | Usually lower |
| Interest rates | Can be higher depending on the lender | Generally lower |
| Legal review | Trust deed reviewed by bank solicitors | No trust deed review |
| Refinancing process | More complex and slower | Simpler and faster |
| Access to first home benefits | Usually not available | Often available |
Why borrow through a family trust?
Here are a few reasons borrowing through a family trust may be worth considering:
Asset protection benefits
This is the “gold standard” reason. Because the property is legally owned by the trust, not you personally, it is generally shielded from personal creditors.
If you are a business owner or a professional in a high-risk industry (such as medicine or law) and you are sued personally, the family home held in a trust is often out of reach of claimants.
Tax flexibility and income distribution
In a personal name, 100% of the rental income is taxed at your marginal rate. In a family trust, the trustee can “stream” income to beneficiaries in lower tax brackets.
For example, if one spouse earns $200,000 and the other earns $40,000, the trust can distribute the property’s profit to the lower-earning spouse to minimise the family’s total tax bill.
Estate planning advantages
Trusts do not die. When a family member passes away, the trust continues to exist. This allows for the seamless transition of property control to the next generation without the delays of probate.
It also avoids the immediate trigger of Capital Gains Tax (CGT) and Stamp Duty that usually occurs when a property changes hands personally.
Who should NOT use a family trust loan?
A family trust loan is not the right structure for every borrower or situation. This option is generally not suitable for:
The biggest risks of a family trust loan
While the benefits are significant, family trust loans are not for everyone. Failing to account for these risks can lead to financial disaster.
Negative gearing losses stay in the trust
This is the single biggest “con” of trust ownership. If you own a property personally and it runs at a loss (expenses exceed rent), you can use that loss to reduce the tax you pay on your salary.
In a trust, losses are trapped. They cannot be distributed to beneficiaries. If the trust loses $20,000 this year, that loss stays inside the trust to be offset only against future trust income.
Trusts are best for positively geared properties or for long-term “land banking” where you are comfortable carrying the holding costs without a tax refund.
Land tax and foreign person surcharges
In states like NSW and Victoria, trusts are treated harshly regarding land tax.
In NSW, most family trusts do not receive a land tax threshold, meaning land tax can apply from the first dollar of land value. In Victoria, trusts are subject to land tax from a lower threshold than individuals.
If a trust deed does not properly exclude foreign beneficiaries, NSW trusts may also face an additional foreign surcharge land tax of up to 5% per year.
Land tax rules can vary depending on how the trust is set up and who the beneficiaries are. For this reason, it is always best to speak with your solicitor to understand how land tax laws apply to your trust.
Loss of first home buyer benefits
Most government grants and stamp duty concessions (such as the First Home Guarantee) require the property to be held in an individual's name. Buying through a trust usually forfeits these benefits.
Capital gains tax on your own home
If you buy your own home (Principal Place of Residence) in a family trust, you generally lose the CGT exemption.
When you sell the home years later, you will have to pay tax on the profit, whereas you would have paid zero if you owned it personally.
Is it challenging to get a family trust loan in 2026?
The short answer is yes. While most major Australian lenders (CBA, Westpac, ANZ, NAB) and many tier-two lenders (Macquarie, Suncorp) offer trust loans, the process is more rigorous.
Getting a trust loan nowadays has become challenging because banks are more careful with risk. Some big lenders have even stopped taking new trust applications for now because the rules have become so complex. If you want a trust loan today, you must be ready for :
The serviceability test
Banks do not just look at the trust. They look at the people who control it. They want to be sure you can pay the money back even if the trust has a bad year.
Personal guarantee
- Almost every bank will ask you to sign a personal guarantee
- This means you are personally responsible for the debt
- If the trust cannot pay, the bank can come after your own savings or other assets
- Most banks want every adult who benefits from the trust to sign these papers
New income rules
From early 2026, APRA has strengthened its guidance to lenders, encouraging more conservative serviceability assessments, particularly where total debt is high compared to income.
While there is no formal debt-to-income cap set by APRA, many lenders now apply their own internal benchmarks. In practice, this often means borrowing is assessed against a limit of around six times gross annual income as part of standard credit risk checks.
For family trust loans, these assessments are usually stricter. Lenders commonly apply discounts to rental income and place greater emphasis on the personal income, existing liabilities, and overall financial position of trustees and guarantors.
Higher costs: The "trust price"
Even when a loan is approved, borrowing through a family trust often comes at a higher cost than a standard owner-occupied or personal investment loan.
- Higher interest rates: In the current interest rate environment, with the RBA cash rate at 3.85% as of February 2026, lenders typically apply an additional risk margin to trust structures. As a result, interest rates on family trust loans are often higher than comparable personal loans, particularly where the application is assessed under commercial or specialised credit policies.
- Legal fees: The bank will hire a lawyer to check your trust papers. You have to pay for this. It usually costs between $500 and $1,500.
The 2026 "foreign person" rule
This is a major hurdle in 2026. States like NSW and Victoria have high taxes for "foreign trusts."
- Banks are scared the trust will get a surprise tax bill for being "foreign."
- To avoid this, banks now require your trust papers to say clearly that no foreign person can ever receive money from the trust.
- If your papers do not have this exact wording, the bank will not give you the loan until you pay a lawyer to change them.
Bigger deposits
Banks think trust loans are riskier. Because of this, they often ask for more money up front.
- For a normal home loan, you might need a 10% or 20% deposit.
- For a trust loan, many banks now want a 20% or even 30% deposit.
- This means you need a lot of cash ready before you can even apply
Step-by-Step guide to securing your family trust loan
If you have weighed the pros and cons and decided to proceed, follow this roadmap:
Step 1: Seek professional advice
Before applying, make sure the right professionals are involved. A family trust loan needs to be set up correctly from the start. Lenders will look closely at the trust structure, the trustee, and how the loan will be serviced.
At a minimum, you should involve:
- A mortgage broker to confirm which lenders accept family trust borrowers and how the loan should be structured.
- An accountant to review trust income, distributions, and tax implications.
- A solicitor to confirm the trust deed allows borrowing and that the trustee setup is correct.
Getting advice early helps avoid common delays such as incorrect trustee details, outdated trust deeds, or missing resolutions.
Step 2: Verify the trustee structure
In Australia, you typically have either an Individual Trustee or a Corporate Trustee. Lenders generally prefer Corporate Trustees because they offer more continuity and clearer separation of assets.
If Individual: Ensure all trustees are listed correctly and are willing to act as guarantors.
If Corporate: Ensure the company is "proprietary limited" (Pty Ltd) and in good standing with ASIC.
Step 3: Organise your documentation
Trust applications require significantly more paperwork than personal loans. You will need to gather:
- A certified copy of the trust deed (including all variations and evidence of stamping).
- Financial statements for the last two years (Profit & Loss and Balance Sheets).
- Tax returns and Notices of Assessment for the trust.
- Identification for all trustees, directors (if a corporate trustee), and often all adult beneficiaries.
Compiling this documentation is often the biggest hurdle to securing finance.
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Step 4: Identify and prepare your guarantors
Because a trust is not a separate legal entity, lenders require a safety net. They will almost always mandate Personal Guarantees from:
- All directors of the Corporate Trustee.
- The individual trustees (if no company is used).
- Key adult beneficiaries who receive distributions from the trust.
Ensure all parties understand that their personal assets may be at risk if the trust defaults on the loan.
Step 5: Pass a formal trustee resolution
Once you have selected a lender and a loan product, the Trustee must formally "resolve" to enter into the agreement. This involves:
- Holding a meeting of the directors (or individual trustees).
- Recording a Minute of Resolution that specifically mentions the lender, the loan amount, and the intent to provide security.
Expert tips to improve family trust loan approval chances
Securing a home loan through a family trust involves navigating a higher level of bank scrutiny and legal documentation than a standard mortgage. To streamline your application and protect your assets, consider these essential tips:
Ensure your trust deed allows borrowing
Lenders will closely review the trust deed to confirm it permits borrowing and granting a mortgage. Any restrictions or outdated clauses can delay approval or require costly amendments.
Choose the right trustee structure
Many lenders prefer a corporate trustee rather than individual trustees, as it offers clearer accountability and continuity. This structure can also simplify future changes and succession planning.
Have guarantor arrangements clearly defined
In most cases, directors or beneficiaries will be required to provide personal guarantees. Understanding who must guarantee the loan and to what extent helps avoid surprises late in the approval process.
Prepare full financials for the trust and individuals
Expect lenders to assess both the trust’s financial position and the personal finances of key individuals. Up-to-date tax returns, financial statements, and evidence of income distributions are essential.
Maintain clean and consistent trust records
Inconsistent distributions, missing minutes, or poor record-keeping can raise red flags. Clear documentation demonstrates good governance and reduces lender concerns.
Work with specialists who understand trust lending
Not all lenders or advisers treat trust loans the same way. Guidance from professionals experienced in family trust lending can help match you with the right lender and structure the loan correctly from the start.
How ZedPlus helps with family trust loans?
Navigating family trust lending requires both technical accounting knowledge and strategic brokerage. At ZedPlus, we provide an integrated service that simplifies this process for Australian investors.
- Lender matching: Not all banks "get" trusts. We bypass the rigid retail lenders and connect you with a panel of 40+ lenders including those who specialize in Corporate Trustees, individual beneficiaries, and high-net-worth entity structures.
- Integrated accounting knowledge: Because we are also accountants, we understand how to present your trust's financial statements and distribution history to credit assessors in a way that maximizes your borrowing capacity.
- Tax optimisation: We align your loan with your overall tax strategy, ensuring you maximize negative gearing benefits and capital gains tax (CGT) concessions while maintaining strict asset protection for your family.
- Comprehensive debt management: We don't just find a loan; we manage your total financial health. This includes identifying opportunities for debt consolidation and utilising equity within the trust to fund further investments without triggering unnecessary tax events.
Ready to scale your wealth? Connect with our team to secure the right trust loan.
Family trust loans FAQs
1. Who should consider a family trust loan?
Family trust loans are best suited to borrowers with long-term strategies rather than short-term goals.
They are commonly used by:
- Property investors: Seeking asset protection and tax flexibility.
- Family groups: Pooling funds for shared investments.
- Business owners: Managing personal and business risk.
- High-income earners: Planning income distribution and succession.
They are generally less suitable for first-time buyers or those seeking a simple loan structure.
2. Can I use a family trust loan to buy my own home (Principal Place of Residence)?
While technically possible, it is rarely recommended. If a trust owns the home you live in, you generally lose the Capital Gains Tax (CGT) Main Residence Exemption.
This means when you sell the home, you could be liable for significant tax on the profit—a cost you would completely avoid if the home were in your personal name.
Additionally, most state-based First Home Buyer grants and stamp duty concessions are not available to trusts.
3. What happens to the loan if a Trustee or Appointor passes away?
This depends on your structure. If you have a Corporate Trustee, the loan usually continues unaffected because the company (the legal borrower) continues to exist.
However, if you have Individual Trustees, the property title and the loan must be formally transferred to a new person, which can be a slow and expensive legal process.
This is why having a "Successor Appointor" named in your deed is vital to ensure someone has the immediate power to manage the trust during a transition.
4. Can I "lend" my own money to the trust to help with the deposit?
Yes, this is common. You can provide a "Director’s Loan" or a "Gift" to the trust to cover the deposit or costs. If you choose a loan, you should have a formal Loan Agreement in place.
This ensures that if the trust is ever sued or wound up, you are documented as a "creditor" who needs to be paid back, rather than the money simply being seen as a trust asset available to others.
5. Are there any "hidden" annual costs for a trust loan?
Beyond your mortgage repayments, you should allow for:
- ASIC Annual Review Fees: If you use a Corporate Trustee, an annual ASIC annual company fee of around $300 to $350 applies to keep the company registered.
- Trust Tax Returns: Every family trust must lodge an annual tax return, even if no income is earned. At ZedPlus, we prepare and lodge trust tax returns, ensure distributions are documented correctly, and keep costs minimal for basic family trust structures.
- Land Tax: Trusts may be subject to land tax from the first dollar of land value, depending on the state and trust type.
- Foreign Owner Surcharges: Additional land tax or stamp duty may apply if the trust deed does not include the correct exclusion clauses, even if all beneficiaries are Australian residents.
- Corporate Trustee Compliance: Includes annual solvency resolutions, company record keeping, and director obligations.
These costs are ongoing but manageable when planned for correctly from the outset.
6. Can a self-employed person use trust distributions to prove income?
Yes. If you are self-employed, lenders will look at the "Total Group Income." This means they will assess the profit from your business, any personal salary you take, and the historical distributions made by the trust.
They typically require two years of tax returns for both the individuals and the trust to verify that the income is consistent and sufficient to "service" the new debt.
Final thoughts: Is a family trust loan worth it?
As we have explored, borrowing through a family trust offers unparalleled flexibility for income streaming and estate planning, but it is not a one size fits solution.
With current APRA regulations and land tax surcharges, the hidden costs of a trust can quickly outweigh the benefits if your strategy is not watertight.
Before you apply, it is critical to step back and assess whether a trust loan genuinely aligns with your long-term investment goals, risk profile, and cash flow capacity.
The right structure can support wealth creation and asset protection, while the wrong one can limit borrowing power and create ongoing compliance issues.
If you are considering a family trust loan, speaking with our team early can help you structure it correctly and avoid costly mistakes before you commit.
