[WSBAPT] Question on trustee's powers testamentary trust--*urgent*

[Candace Wilkerson]

Hi Listmates:

I have a situation in which my client is a trustee of a former testamentary trust created by her late husband in his will.  The trust is now in effect, and of course irrevocable, and my client, as trustee, has the usual powers regarding real property (most notably here, to mortgage property).  She has the right to live in the house as well as to a fractional share of the house sale proceeds, if sold, as a beneficiary of the trust.  The other beneficiaries of the trust are the 3 adult children of her late husband (not her children).

The only asset in the trust is a house worth more than $1 million, and the trust is supposed to pay all of the house expenses.  Of course, the problem is that there are no liquid assets to pay the house expenses, so my client, as trustee, is trying to refinance the house to get some cash to pay those expenses.

The lender will only give her the refinance loan if my client, as trustee, can quitclaim the house into her individual name in order for the loan to go through.  Apparently there is no time to waste; they are ready to close the loan as soon as she signs the Quit Claim Deed.  Then, they say, she can just QC the house back into the trust after the loan goes through, no harm done.  I asked why this is necessary, and they said it's because of the irrevocable nature of the trust.  However, she as trustee has the right to mortgage the property so I don't understand the need to remove the house from the trust and then put back in.

I said this doesn't seem like a good idea because of the other beneficiaries; could be considered self-dealing even if she's allowed to do so by the terms of the trust.  I think it exposes her to tremendous liability.  I have already told the client that the only way I would recommend she agrees to this is if all beneficiaries sign a TEDRA agreement allowing her to do this, but of course the lender wants her to do this *by tomorrow.*  And I only talked with the client for the first time today!  No TEDRA can be done that quickly, even if the other beneficiaries would agree to sign it.

All of my instincts tell her to say no; to find another lender who might not require this.  Any thoughts?  Is this a common title company requirement?  It makes me queasy.

Thanks,
Candace Wilkerson


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