TYhere is a trust with 4 beneficiaries, one of the them has made many loans from grantor before her death. Can trust deduct these funds from beneficiaries share.???
Yes, a Trustee usually has the authority a well as a fiduciary obligation to collect ALL assets of the trust, including collecting repayment of loans owed to the trust. The Trustee should have a trusts and estate attorney to advise about the procedures available, as there are several mechanisms that can be used to collect trust assets such as outstanding loans, and in some cases the procedures may be specifically authorized in the trust itself. If not, there are specific sections of the California Code that deal with this situation.
In some cases, we have resolved these situations by having the whole or a portion of the amount of the loan be offset against that beneficiary's share of the trust assets.
You are absolutely correct to be concerned about the unfairness to the other beneficiaries because if the Trustee fails to collect all the assets of the trust, the Trustee may have liability exposure to the other beneficiaries who received smaller amounts because property that should have been in the trust and available for distribution to them, was not collected.
The Trustee should immediately gather all documents including the trust document and all evidence of the loan in any form, whether it be a loan document, bank records evidencing funds transferred from the deceased to the borrower, or notes regarding statements about the loan made by the trustor/deceased to other parties, etc.. The Trustee should hire a trust attorney to advise and pursue collection, and/or to document the efforts or decisions made by the Trustee so that the Trustee is protected from liability for their decisions. After a review, the attorney should be able to advise on the procedures available, the authorization for action given in the trust instrument itself, or the probate code section or civil litigation alternatives available to collect money owed.
If the beneficiaries are all family members, this type of situation may be resolved more quickly and cost effectively in a private mediation rather than a full blown litigation. The family members can all meet and discuss the issues, to work out a solution acceptable to everyone. The Trustee's attorney should be able to set up the mediation.
Due to the complex issues involved and the potential for personal liability to the Trustee, the Trustee should receive an attorney's counsel as soon as possible.
Our office has two trained mediators and Certified Specialists in the area of Trusts and Estates law. Feel free to have the Trustee call our LA office for an appointment.
Perhaps. If the loans were documented and contained provisions that they should be repaid, the Trustee is probably REQUIRED to collect on them in some way. If there is no documentation however, things get a lot stickier and the treatment as loans as 'advances' is possible, but not necessarily required.
I would strongly urge the Trustee to consult with an attorney familiar with this area of law to insure he/she handles things properly.
I agree with both of the other responses, which of course, contradict each other. The answer is not clear from the facts presented. What was the lendor/grantor's intent? Were the loans intended to be repaid or forgiven? I would say it is generally about 50/50 in terms of what parents intend. The evidence in your situation will dictate how you proceed.
Presumably the lendee is claiming that the loan was supposed to be forgiven at death. The recollection of the other beneficiaries is just as presumably different. The lawyers and judges usually wind up sorting this out, if the beneficiaries cannot agree.
James Frederick
