Liza Horvath, Senior Advocate: Borrowing against a future inheritance

Question: I am a beneficiary of my grandfather’s estate. There was a lot of real estate and most has been sold. The trustee has distributed some of the cash to us. There is one more property to sell but it is just sitting on the market. I asked the trustee if I could get a loan against my share and he said no, it is against the law. Is that true? If I am entitled to a share and want to get a loan on it, why should I have to wait until the property sells?

Answer: Your grandfather’s trust most likely contains a “spendthrift” clause which, among other things, prohibits beneficiaries from using their future inheritance as collateral for loans until the property is received by the beneficiary. This clause is in most trust documents and is used primarily to protect beneficiaries.

For example, say that when your grandfather died you were experiencing financial difficulties and creditors were placing liens on your bank accounts or other assets. With a spendthrift clause, a creditor cannot lien your future inheritance even though you are entitled to receive the inheritance. This might give a beneficiary time to deal with creditors before the inheritance comes into their possession and thereby keep it from being used up to satisfy prior debts.

Question: My wife and I, along with her siblings, are settling her mom’s estate. We all want various furniture and art and some are taking more than others. Their items will need to be shipped to them out of state. Should each beneficiary pay for the shipment themselves or should that expense be paid from the trust funds? Also, if they need to travel here for the funeral, are we supposed to reimburse them from the trust for those expenses?

Answer: This question comes up often and, like many legal answers, it depends. If the trust is “silent” on this matter, then the trustee is not obligated (or authorized) to pay the costs of shipping or storage of personal property. Similarly, the trust does not need to pay for or reimburse beneficiaries for their costs in travel to the service unless the document directs otherwise.

I hear complaints from clients that their trust document is “too long” or “too complex,” but it really does help a trustee to have clear direction on these kinds of questions and spelling it out in the document is the best way to accomplish well-defined guidance. Trusts can state something like “the trustee shall pay all shipping, storage and insurance costs related to the distribution of personal property.” Absent this kind of language, a trustee could expose themselves to criticism if they, on their own volition, pay these expenses. The same with travel expenses, spelling it out makes the intent of the trustor clear and insulates the trustee from scrutiny.

Absent the language, if the beneficiaries of your mother-in-law’s trust all agree that shipping costs and travel expenses can be covered or reimbursed, then the trustee should feel comfortable in doing so. If the beneficiaries do not agree, an alternative is to pay the costs out of trust funds but have the agreement that these are considered advancements of each beneficiary’s individual inheritance and will be deducted from their final share of the trust assets.

Liza Horvath has more than 30 years of experience in the estate planning and trust fields and is a licensed professional fiduciary. Liza currently serves as president of Monterey Trust Management. This is not intended to be legal or tax advice. If you have a question, call (831) 646-5262 or email liza@montereytrust.com

Contributed by local news sources

Next Post

49ers’ Trey Lance delivers in clutch but still misfiring with Deebo Samuel

SANTA CLARA — Six seconds remained on the clock. Trey Lance needed to finish off a lengthy drive with a touchdown. And he did. How the 49ers’ new starting quarterback produced those points was as interesting as it was necessary. “In that situation, everyone is on the goal line, and […]