Overview

As aging homeowners transition into retirement, their family trusts often become active vehicles for real estate investment. In this case, two sons—successor co-trustees of a family trust—take over management of their parents’ long-held residential property. Their goal: to secure financing for renovations and convert the home into a rental asset.

This scenario presents a compelling opportunity for real estate professionals, especially those involved in private lending, trust transactions, and investment property management.

Trust Structure and Authority

The original trustee, now retired, was both the trustor and beneficiary of the family trust. Upon his transition to a retirement home, he legally transferred trustee responsibilities to his two sons. The sons now serve as co-trustees and beneficiaries, with full authority to act on behalf of the trust.

Please note that, as a matter of law, the trustee of the family trust owns the property on behalf of the trust. The trust is not a standalone entity and cannot act without a trustee.

For real estate professionals, understanding the legal framework of trust ownership is essential. Transactions involving trust-owned properties require:

• Verification of trustee authority
• Review of trust agreements and amendments
• Proper documentation for title and loan purposes

Loan Purpose and Regulatory Compliance

The co-trustees sought a loan to renovate the property, which had not been updated in over 30 years—the renovation aimed to prepare the home for rental, generating income for the trust.

Loan Allocation:

• 70% for construction/business purposes
• 30% for consumer purposes

This structure complies with the Truth in Lending Act, Section 32, which governs high-cost mortgage loans. For real estate professionals and lenders, it’s critical to ensure that more than 50% of loan proceeds are used for business purposes to qualify as a business-purpose loan.

Private Lending Strategy

This case highlights the value of private money lending in trust-owned real estate transactions. Private lenders offer:

• Flexibility in underwriting
• Short-term financing options
• Willingness to work with non-traditional ownership structures

In this case, the lender:

• Reviewed trust documents to confirm signing authority
• Verified business purpose through contractor estimates and renovation plans
• Assessed property equity to support a first trust deed loan
• Determined that no construction fund control account was necessary

Execution and Results

The co-trustees responded promptly, providing all required documentation. The loan closed successfully, renovations were completed, and the property was rented out—producing strong cash flow and increasing the trust’s asset value.

For real estate professionals, this outcome demonstrates:

• The viability of trust-owned properties as investment assets
• The importance of strategic lending partnerships
• The potential for legacy properties to generate new income streams

Key Takeaways for Real Estate Professionals

• Trust-owned properties can be leveraged by the trustee for investment purposes with proper documentation and the necessary trustee authority.
• Private lenders are ideal partners for short-term, business-purpose loans involving family trusts.
• Business-purpose classification is essential for regulatory compliance and loan structuring.
• Renovation and rental conversion can significantly enhance property value and trust income.