David Fowler Johnson, of Winstead PC, has made available for download his article, “Administering Trusts in Recessions: Trust Loans to Beneficiaries,” published in JDSUPRA. The abstract is as follows:
Beneficiaries often request that a trustee make them a loan from trust property. In an economic downturn, such requests are even more prevalent. As a general rule, a trustee should not want to make a loan to a beneficiary as it should assume that the beneficiary will default and the trustee will then be placed in a situation of having to collect on a debt from a beneficiary, a person to whom the trustee owes a fiduciary duty. Yet, the trustee may have pressure to make such a loan: the loan document may require it or suggest that same should be made, the beneficiary may have a right to remove the trustee, the settlor may want the loan to occur, the trustee may like the beneficiary and want to assist him or her, the trustee may have other non-trust relationships with the beneficiary or the beneficiary’s family, etc. There are many different ways that a beneficiary or others may exert pressure on the trustee to make such a loan.
Posted by Bella Hoang, Managing Associate Editor, Wealth Strategies Journal.