What can be done to protect the remaining beneficiaries if one of them borrows from a Trust?

UPDATED: May 21, 2014

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What can be done to protect the remaining beneficiaries if one of them borrows from a Trust?

Our mother, who is still alive, has set up a trust fund for her four adult kids. The Trust is divided up equally between the 4 of us. One of the siblings is struggling to pay his mortgage. If he barrows from the Trust (our mother), can the amount he borrows be deducted from the remaining Trust after mom dies? Is there a legal document he can sign, so the 3 other siblings are protected?

Asked on May 21, 2014 under Estate Planning, Idaho


M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

As a general rule,  a trustee can loan money to any party - so long as it is reasonably secured and meets the requirement of the prudent investor rules. A trustee has a duty to act impartially to all beneficiaries so if she is going to loan him money she should speak with an attorney about creating a loan document for repayment (a note) and indicating in her Will or the trust document that if the money is not repaid it is deducted.  The law in your state will guide the wording and requirements for filing.  Good luck.

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