My wife and I are doing some planning, and one of the options that has been suggested to us is to put the family home in a family trust. There seems to be no problem having a mortgage on the house when we do so, which is confusing me. Since one of the advantages of a trust (as it's been explained to us) is protection from creditors, why would a bank lend us money when they can't collect the security if we default?
The asset protection part of a trust is to protect your assets from creditors who have no security in your personal assets
However a Mortgage from your bank on a house owned by a trust, is still secured to that Asset, so there is asset protection available here.
If you default on the mortgage payments then the bank can still take your family home.