Can I Borrow From a Trust?

Estate Lawyer

Whether you’re the grantor, trustee, or beneficiary of a trust, you might wonder if there’s a possibility to borrow from the trust. It may seem there’s plenty of assets to fund the loan, so why not? The problem is it’s not as simple as it might seem and every situation creates a unique set of circumstances.

Irrevocable vs. Revocable

There are two types of trusts to consider: irrevocable and revocable. In some cases, revocable trusts can be borrowed from because the grantor can modify a living trust. For example, someone who has a piece of property in the trust can revise it to not include that property. That person could then get a loan against the property before revising to include the property in the trust again.

Irrevocable trusts are a different story. It’s unchangeable and the grantor doesn’t have any control. The trustee can make changes, but it all depends on the terms decided on at the beginning of it. Some terms may prohibit the trustee from allowing a beneficiary to take out a loan and others might allow the trustee to make the decision. If the beneficiary is believed to be unable to pay it back, it may get denied.

What a Trustee Should Consider

In addition to whether or not the beneficiary will be able to pay back the loan, trustees should consider the following when making a trust loan decision.

  • Collateral – Whether the trustee collects collateral or a promissory note, appropriate documentation is needed.
  • Procedures – There are certain internal procedures that must be followed. The trustee should also document every step.
  • Taxes – A trustee should look at the tax advantages or disadvantages for the type of loan requested. Some loans could be a benefit without increasing the individual’s income tax.
  • Grantors – Though a trustee doesn’t have to consider the wishes of the grantor when modifying a trust, it’s not always a bad idea and could give insight as to how it might benefit or be a detriment to the beneficiary and the trust.

Getting Assistance With Your Loan

If you find yourself in a situation that involves borrowing against a trust, realize you may not be able to. If the irrevocable trust is made up of property that’s not yours, you don’t have a right to take a loan against it. Contacting a trust litigation lawyer in Cherry Hill, NJ can help you through the process whether you’re the grantor, the beneficiary, or the trustee. Contact your attorney today to get assistance.


Thanks to Klenk Law for their insight into estate planning and borrowing from trusts.

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