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

[Jeannie OBrien]

I have had this happen in a probate, when there are more beneficiaries than just the PR, but all were family members and in agreement, so we had them disclaim and quit claim their interests in the family home. Only then could the PR/sibling take out a loan on behalf of the estate. This, even though, as in your case, the PR is authorized to mortgage an estate asset -  the title company didn't care.

Too many times than I can count I have had to QC real property out of a RLT into the individual owners' names for a refinance, and then QC the property back into the trust after the refinance was approved. I would suggest doing that here, having surviving spouse/sole Trustee QC the deed from the RLT to her solely, have the other trust beneficiaries read and sign a CYA letter that you have drafted explaining why you are proceeding this way, and then after the loan is approved, QC the property back into the now irrevocable RLT.

Why title companies allow the Trustee of a now Irrevocable Trust to quit claim the property is beyond me, especially when the sole surviving Trustee has the power within the trust document to mortgage it. While suspect, it is not an unusual request. While the lender may want this by tomorrow, they will wait for it versus losing out on the deal altogether. My two cents.

(I did have a recent case where the lender allowed both Grantors/Trustees to quit claim the property from the RLT, but not back, because the trust did not have the proper language. There was a discussion with the owners that they could QC it back after the refinance, but the lender didn't want to know about it. Wink wink. Not a RLT that I drafted, we decided to write Wills for them instead and forget the RLT.)

Unfortunately the RLT is the best EP tool I have found to transfer property to children of one of the spouses and not of the other. If anyone has a better planning tool, please share.

Hope this helps - Jeannie

Jeannie O'Brien, Attorney
www.SelanderOBrien.com<http://www.SelanderOBrien.com>
3829C South Edmunds Street
Seattle, WA 98118
(206) 723-8200 ofc
(206) 723-3829 fax
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Candace Wilkerson
Sent: Monday, February 10, 2020 3:00 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Question on trustee's powers testamentary trust--*urgent*
Importance: High

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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