https://youtu.be/dx_elbxV-DI
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Hi, this is Keith Davidson from Albertson & Davidson.
In this video, I’m discussing whether or not a Trustee can loan money to the Trust.
So, let’s say a Trust is short on cash. It owns real property. Maybe it owns some other illiquid asset, a business, and they need to pay some expenses. And so the Trustee wants to loan the Trust money and get paid back at a later date.
The problem with any type of transaction between the Trustee and the Trust is it violates the Trustee’s duty to avoid conflicts of interest.
A Trustee has to remain neutral. It cannot have a conflict with the Trust. And any time the Trustee enters into any type of transaction with the Trust, it is, by definition, a violation of the Trustee’s conflict of interest duty. It cannot do those type of transactions.
So that means that the Trustee would have to take an extra step if the Trustee wants to loan the Trust money – which is you either have to go to Court and get Court-approval or you’d have to fully disclose the transaction to the beneficiaries and get all of the beneficiaries’ consent.
So it is possible for a Trustee to loan money to the Trust, but the Trustee does need to be a little careful about how they do it, because, ultimately, if the Trustee wants to be paid back with interest, there’s going to be the potential that a beneficiary is going to say they charged too much interest or they didn’t structure the deal properly and fairly to the beneficiaries.
And so, in order to avoid those type of conflicts, the Trustee, number one, should just not loan money to the Trust. Try to get a loan from some other source. Or, number two, if that’s the only option available, then the Trustee really needs to be careful and make sure that everything is fully disclosed to the beneficiaries and that everybody has consented to it before following through on the transaction.