If you set up a trust, there are certain rules that you and the beneficiaries have to abide by. Normally, a trust is set up with certain assets and an administrator will manage those assets for beneficiaries. In some cases, this will be the person who set up the trust. In other cases, it is someone who the grantor specified would manage the assets. Grantors have some freedom when it comes to setting up rules for the trust. If a beneficiary can borrow against a trust depends heavily on whether or not the grantor allows it. Here is what you need to know about borrowing against a trust.
If a beneficiary needs a loan, then he or she can sometimes borrow against the trust. Now, when someone asks for a loan, it does have to be approved. The grantor or the administrator has to approve of any loans that a beneficiary asks for. In addition, when the trust is created, the grantor can set up rules for what the trust can be used for. Trustees may choose not to loan to a beneficiary if that person cannot repay the loan. This is particularly true if there are other beneficiaries that may lose money due to someone’s poor financial decisions. Trust loans are possible, but there are rules and limits that you have to abide by.
As with any loan, grantors are able to set limits on how much the beneficiary can borrow. In addition, he or she can set limits on what the beneficiaries spend the money on. For instance, a beneficiary may be able to borrow money for medical expenses or for living expenses but not for entertainment purposes. Often, limits are put into place to keep beneficiaries from being able to squander any inheritances. A trustee may also borrow against assets on behalf of the trust. For instance, someone may borrow against a trust-owned property to fix it up for the beneficiaries.
Beneficiaries can borrow against trusts as long as the rules allow it. In addition, if you borrow against a trust, you will usually have to have the loan approved by the administrators of the trust. All of the rules for borrowing assets or money are put into place by the grantor when the trust is created. If you’re considering borrowing money from a trust or if you want to make sure that your beneficiaries can borrow money, then you should consult with an estate law lawyer in Rolling Meadows, IL.
Thanks to Bott & Associates, Ltd. for their insight into estate planning and beneficiaries taking a loan against trust.