What is a Trust Loan?
A trust loan is a specialized type of loan typically only made by private money lenders. Conventional lenders such as banks and credit unions are generally not able to provide this type of loan as the borrower does not currently have their name on title of the real estate. North Coast Financial is able to make a trust loan directly to the trust and then have a beneficiary or trustee assume the loan.
The trust agreement must allow for a loan from the trust to the beneficiary (or trustee) to borrow against the real estate. Trusts commonly allow for the trustee to obtain a trust loan for the benefit of the trust or beneficiaries. Trustees can encumber and pledge assets of the trust and guarantee debts for the benefit of the trust and beneficiaries.
Trust Loans to Beneficiaries
Trust loans are frequently used by beneficiaries (siblings, heirs) who wish to divide an interest in trust-owned real estate assets. Often one of the beneficiaries wants to maintain ownership of the real estate while other beneficiaries want cash in exchange for their interest in the property. Trust lending solves the problem by providing fast and flexible funding for the beneficiaries.
Lending to a trust involves making the loan directly to the trust and securing the loan against real estate assets owned by the trust. The successor trustee will need to approve of the trust loan and sign the loan documents and disclosures. In many cases, a successor trustee or beneficiary of the trust will need to provide a personal guarantee for trust loan.
Lending to a Trust (Irrevocable or Living)
Lending to an irrevocable trust requires approval and action from the successor trustee(s). The successor trustee will be required to review and sign various loan documents and disclosures related to the irrevocable trust loan. Lending to a living trust (revocable trust) would be handled by the current trustee.
Lending to a trust typically takes 1-2 weeks to fund as long as there are no issues with title and trustee is able to review, sign and return the trust loan documents and disclosures in a timely manner.
Proposition 58 – Avoid Property Tax Reassessment
Trust loans can also help a beneficiary utilize Proposition 58 in order to avoid a property tax reassessment. Proposition 58 allows for the exclusion of a property tax reassessment for transfers from parents to children. A trust loan can save the beneficiary thousands of dollars per year in property taxes going forward.
Consult an attorney or a tax professional to ensure the transfer is handled correctly.