Summary:

The parents created a revocable family trust, making their two sons successor co-trustees…

The parents signed a document transferring the trust management from themselves as trustees to their sons as successor trustees while they were still living…

The two sons found themselves in a unique and potentially conflict-ridden position, serving as both the successor trustees and the sole trust beneficiaries. This dual role, which could lead to conflicts of interest and complex decision-making, underscores the intricate and challenging nature of family trust management.

Article:

When Mom and Dad die, the sons will collect the unearned goodies as beneficiaries. This situation is complicated by the fact that the parents’ financial situation and their intentions with the trust are not fully known, which can lead to disagreements and potential conflicts between the sons as they navigate their roles as both trustees and beneficiaries.

One son wanted to borrow money against the trust property because the trust allowed the successor trustees to ‘encumber’ it. This term means using the property as collateral for a loan. This practice can have significant implications for the trust’s financial health and the relationship between the trustees and the trust beneficiaries.

The other son objected because the loan proceeds would not benefit the parents, and he didn’t need the money…

The two had a hostile relationship because, despite benefiting from their parents’ efforts and wealth accumulation, they each had different financial needs, creating a potential for tension and conflict that can arise in managing a family trust.

Is the son acting selfishly by borrowing from his parents’ property? This ethical dilemma, a common issue in family trust management, is a question that many trustees may find themselves grappling with.

Do many families face this common situation? 

When a trustee seeks a loan on behalf of the trust, the lender becomes a key player in decision-making. In our example, the lender’s recognition of the two successor trustees and their request for a signed letter of interest, a standard underwriting requirement, underscores the lender’s significant role in these transactions.

The trustees then decide how to distribute the loan’s net proceeds and who will be responsible for the monthly payments. The lender’s involvement highlights the significance of their role in these transactions.

Both successor trustees are involved in and legally obligated to sign the loan documents on behalf of the trust. It’s crucial to note that the lender will reject the loan application if one of the trustees refuses to sign. This underscores the potential consequences of their actions, such as losing their trust property, and the importance of cooperation and agreement between the trustees in such transactions.

If the trust document allows either successor trustee to encumber the property independently of the other, both must still agree because they are the beneficiaries.

Successor trustees hold the property title for the trust and the beneficiaries. However, they are both legally obligated to make the payments, ensuring the trust’s financial stability and fulfilling their parents’ wishes. This legal obligation means that the trustees must act in the best interest of the trust and the beneficiaries, even if it means making personal sacrifices. This includes making decisions that may not align with their personal financial needs or desires, a responsibility that can lead to conflicts and ethical dilemmas.