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Q: trust funds - debt liability ( Answered,   2 Comments )
Subject: trust funds - debt liability
Category: Relationships and Society > Law
Asked by: skeezix1-ga
List Price: $10.00
Posted: 18 Apr 2006 10:01 PDT
Expires: 18 May 2006 10:01 PDT
Question ID: 720213
My parents have a trust (instead of a will).  Both my brother and I
are "executors".  My brother has asked my parents to run up large
debts (2nd mortages, etc) on his behalf.  At the time of my parents
passing, if by brother were to default on the payment of the loans,
because my name is also on the trust, would I be responsible also?

Request for Question Clarification by richard-ga on 18 Apr 2006 15:19 PDT
Who loaned the money to your brother?  If it was your parents, then
the mortgage note he gave is a promise to pay them back.  If it was
the trust (i.e. the money went to him from an account of the trust),
then the mortgage note he gave is a promise to pay back the loan to
the trust.

It matters, because if you're a trustee and he borrowed from the
trust, then you could be blamed for making a bad loan.

Looking forward,

Request for Question Clarification by richard-ga on 18 Apr 2006 15:23 PDT
Either way, I'm assuming that your brother is signing a note promising
to repay the money that's being given to him.  They're not just
borrowing money and giving it to him, right?


Clarification of Question by skeezix1-ga on 19 Apr 2006 09:48 PDT
The trust is a living trust.  My understanding is that my parents
cosigned on my brothers mortgage and then took a 2nd mortgage on their
own house to serve as downpayment for my brother.  I am not sure that
there was specifically a promisory note between my brother and my
parents.  My only exact knowledge about it is that the money for the
2nd mortage is coming directly from my brother's bank account - so I
can assume but am not positive.

Thanks for your input.  It's kind of a situation where I want to see
if anyone has been in this boat before I go to a lawyer.  The idea of
requesting that I be removed from my parents trust has a lot of
implications - financially there is nothing (my brother has seen to
that), but socially and emotionally being "removed" from the family.

Thanks for kind of a "pep talk" before I decide to proceed with this
Subject: Re: trust funds - debt liability
Answered By: richard-ga on 19 Apr 2006 20:20 PDT
Hello and thank you for your question.

Two things happened:

1.  Your parents borrowed a sum of money from a bank, secured by a
second mortgage on their home, and gave the money to your brother. 
While your brother probably didn't sign anything legally obligating
him to make their loan payments for them, that's what he's been doing.

2.  Your brother used the money that your parents gave him as a
downpayment for a loan that he took out, and your parents signed a
guarantee, legally obligating them to pay his bank loan for him if he
stops paying or goes bankrupt.

You can assume that your parents' two legal obligations - - to pay
back the money they borrowed in (1) if your brother stops paying it
for them, and (2) to pay back your brother's loan if he stops paying
it, will continue as legal obligations of their estates after they

If the value of your parent's home and their other assets is less than
the amount of their all their debts (including number (1) and, if your
brother defaults, number (2)), then their estate will be an "insolvent
estate" and there will be nothing for you to inherit.

But the answer to your question is that even if you are executor of
their estate and trustee of their revocable trust, you will not be
obligated to use your own money to pay off any of their debts, even if
their assets fall short.

All you will have to do, as their executor and trustee, is give the
proper notices and file the proper papers, and make sure that you pay
their debts in the proper order (since you won't have enough of their
funds to pay all their creditorss in full).  You won't be personally
liable unless you pay the wrong creditor.

For example, here is an explanation for Vermont, but every state has
its own statute that tells you exactly what to do [and most state laws
will allow you to use your parent's money to hire a lawyer to get it
done right, even though that will leave less for the creditors; you
should even be able to collect a fee for the work that you do] Estates

So, while as beneficiary of an insolvent estate there will be nothing
for you to inherit, you do not have to fear losing your own assets to
your parents' creditors.

Search terms used:
"insolvent estate" executor discharge

Thanks again for letting us help.
Subject: Re: trust funds - debt liability
From: myoarin-ga on 19 Apr 2006 02:49 PDT
I think we need some clarification.  Is it a Living Trust?  You say
that you and your brother are executors of the trust, which I assume
means that you will be the executors one day, but are not the trustees
who administer the trust at present.  Who is?
And, as Richard-ga asks, who would be the lender:  your parents from
funds separate from the trust; or, at their decision, from the trust

Actually, any information you receive here cannot be advice (see the
disclaimer below); you need to ask a lawyer, perhaps the one who drew
up the trust and is probably familiar with your parents intentions.
Regards, Myoarin
Subject: Re: trust funds - debt liability
From: myoarin-ga on 19 Apr 2006 13:52 PDT
HI, again,
Only to say that as you have described the situation, obviously you
are not responsible in any way  - as considered possible by Richard-ga
prior to your clarification.  You should certainly remain an executor
to the trust in your own interests.
I still think you should talk to a lawyer, just to gain a proper
understanding of the possible ramifications of the situation.  Perhaps
if it is someone who knows your parents  - and s/he envisions problems
about fairness -  the person would be willing to talk to your parents
about a way to remedy the situation.

Good luck, Myoarin

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