How to Secure Debt with Trust Assets

A parent or grandparent set you up with a trust fund, but you need some money now. You'd like to get a loan, using the trust assets as collateral. Whether that can be done depends on the type of trust and the terms of the trust agreement. You don't own any assets of the trust until you inherit them. The trust owns them and they are under the control of a trustee, who is charged with managing and protecting its assets. Many lenders will not make loans not secured by assets in the name of the borrower.

Read the trust agreement carefully to see whether it permits the trustee to pledge assets for a loan to a beneficiary. Identify any specific assets listed in the trust which might be used to secure a loan, such as a house or other real estate pledged to you as a beneficiary. Check the deed or title to be sure what name it is in; normally it will list the trust, such as I.M. Person Living Trust, I.M. Person Trustee.

Consult with the trustee; if the trustee will not approve using assets to secure your loan, you are stopped. Ask about removing some assets from the trust if it is revocable or a living trust, which can be modified by its creator or grantor. Have the trust grantor move an asset outside the trust temporarily to use it to secure a loan, then put it back in the trust; this needs the cooperation of the parent or grandparent.

Approach a bank or other lender about using trust assets to secure a debt. Furnish a copy of the trust agreement listing the assets and your rights as a beneficiary. Ask the trustee to co-sign the loan to assure the lender the asset will secure the debt.

Items you will need

  • Trust agreement

About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.