If you’re working with a family trust, understanding how you can interact with the properties held by the trust is an important part of making the most of your financial resources. Beneficiaries have a few methods for raising money, some of which involve loans to them based on the value of the trust, while others involve loans the trust can take out based on its income from investments and existing assets available as collateral. Here are top answers to five of the most common questions trust beneficiaries have about loans and how they interact with trust structures.
Yes, in California trust entities can take out a mortgage on properties held by the trust and assume the obligations of payment, at least as long as the originator is still alive. Both traditional and alternative lenders frequently work with trusts to provide mortgage loans suited to the purchase of new properties. This allows the originator of the trust to acquire property for the trust without conducting a rollover that requires closing on the property and then adding it to the trust. It also avoids complications that could arise if an individual holds the mortgage but the trust acquires the property, which would happen if originators could not take out a mortgage.
For trusts that are no longer living trusts, it’s also possible to take out secured loans against equity in the properties held by the trust, but depending on the circumstances and type of trust it may no longer be possible to obtain mortgages for the purchase of new property. Seeking legal advice is a good way to learn more about the specific provisions of your trust.
2. Why Would a Trust Need a Loan?
Trusts frequently need to create liquidity while balancing payouts to beneficiaries, especially if the trust is being divided and some beneficiaries are seeking liquidity while others want real assets currently held in trust. Executors and trustees need tools to be able to create that liquidity while selling real assets and handling other aspects of the property division.
3. Can Beneficiaries Borrow Against a Trust?
Trust loans to beneficiaries are possible in California if your trust provides a steady income with predictable payouts and you need capital ahead of the next cash distribution. For more information about the loans available, you need to talk to a lender about possible trust loan structures.
4. What Documents Are Needed When Applying?
Trust loans generally require less documentation than loans for real estate purchases or vehicles because the value of the trust and its payout structure to beneficiaries are well-documented on their own. The exact requirements differ from lender to lender, but they remain streamlined for fast approval at most lenders.
5. What Loan Structures Are Available?
The types of loans available differ depending on your role and the purpose of the loan. Short-term loans provided by private lenders tend to use a hard money model. As a result, when you’re looking for trust loans, your best bet is to start with a hard money lender Los Angeles CA.