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Abstract: 

When faced with loans made to, guaranteed by, or collateralized by a trust, lending institutions can become either overly cautious or overly skeptical, thus resulting in either an outright denial of the loan or a loan made on an underlying assumption that the trust is simply the alter ego of the borrowing party. However, the actual circumstances in any given case often warrant taking a position somewhere in between these two extremes. By addressing the basics of a trust, key trust provisions, red flags to consider, and common scenarios involving trusts, this article seeks to help lending institutions feel cautiously comfortable when faced with trusts and to ensure that lenders are properly protected.

Keywords: fiduciary duty; authority to borrow; beneficiaries’ rights; investment authority; load documentation; power to divide trust; term modifications

Affiliations:  1: Horwood Marcus & Berk Chartered; 2: Horwood Marcus & Berk Chartered.