The following should assist you in understanding a financier’s position when making a credit assessment involving a trust. Most underwriters particularly a Bank will seek to establish during their assessment the guarantees/guarantor of “substance”.
This is best conveyed by:
- Guarantees from beneficiaries of a Trust – a Bank are looking to take a guarantee from the individual’s or entities who obtain the greatest (material) benefit from the Trust distribution.
- Guarantees from a person of substance - a Bank is looking to take a guarantee to support a transaction from an individual and/ or corporate that has substantial asset backing to support their guarantee. They will in the main look to track through a corporate structure to an individual who is the ultimate beneficiary.
- Guarantees from vulnerable or third party guarantors- these should be avoided where possible due to the risks associated with that person understanding the full financial position of the borrower.
The essence is that a Bank is looking to take a guarantee from an individual who gains a material benefit from the transaction and who has the asset backing that would support the type (amount) of the guarantee.
An example of a possible scenario is:
ABC Pty Ltd as trustee for the Adams Family Trust
Director: Gomez Adams
Beneficiaries:
- Gomez Adams; (holds no real estate assets)
- Morticia Adams; (holds real estate assets)
Children:
- Lisa Adams; and
- Pugsley Adams.
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In this instance the guarantee of the director & (adult) beneficiary would be required if there is no assets (real estate assets) in the trustee company name.
