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Borrowers using trusts warned

People who have a revolving credit mortgage associated with a trust may be facing trouble.Thousands of mortgage customers with trusts are creating gift duty liabilities for themselves without even realising it, the chief executive of a trust management company says.

Friday, November 17th 2006, 12:00AM

by The Landlord

Mark Maxwell of Integrity Trust says these people are often unwittingly increasing the chances of their trust being challenged as a sham.

 

Splitting mortgages between a fixed rate mortgage and a revolving credit facility has become an increasingly popular trend over recent years. These facilities work by allowing customers to deposit money as it is received then withdrawing it as required. As well as providing the flexibility to redraw from ones mortgage there can be significant interest savings over the term of a mortgage for those disciplined enough to manage them well.

 

 

With billions of dollars worth of fixed rate mortgages maturing over the coming months it is likely that some of this borrowing will be switched to revolving credit mortgages. When the mortgage involves a trust, care needs to be taken to structure things correctly and ensure that deposits and withdrawals are managed appropriately.

 

 

Customers need to be aware that every deposit made to a revolving credit facility operated within a trust can be assessed as a gift unless it is documented otherwise. Gift duty becomes payable when total gifts exceed $27,000 each year and progressively increases until it reaches 25c per dollar gifted. For people already involved in gifting their home to the trust the duty liability can mount up very quickly.

 

 

“The lack of education by advisers around how trusts need to be managed after they are established is creating these risks and many others,” Maxwell says.

 

 

In addition to gift duty risks, trustees may also find they are providing those seeking to challenge a trust exactly the type of evidence they need to have the trust ruled a sham. This could prove to be far more costly than any duty liabilities.

 

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Lender Flt 1yr 2yr 3yr
AIA 4.55 ▼2.29 ▼2.59 ▼2.65
ANZ 4.44 2.89 3.25 3.39
ANZ Special - 2.29 2.69 2.79
ASB Bank 4.45 2.29 2.59 2.65
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.29 2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 2.89 3.19 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
HSBC Special - 1.99 - -
Lender Flt 1yr 2yr 3yr
ICBC 3.69 2.25 2.35 2.65
Kainga Ora 4.43 2.79 3.04 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
SBS Bank 4.54 2.79 2.79 3.15
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.29 2.29 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.09 - -
The Co-operative Bank - Owner Occ 4.40 2.29 2.59 2.79
The Co-operative Bank - Standard 4.40 2.79 3.09 3.29
TSB Bank 5.34 3.09 3.29 3.45
TSB Special 4.54 2.29 2.49 2.65
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.29 2.69 2.79
Median 4.55 2.79 2.99 2.80

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