How to Borrow From an Irrevocable Trust
When funds are placed into an irrevocable trust the assets no longer belong to the grantor (the person depositing the assets). Beneficiaries don't own the assets either; they are only entitled to distribution benefits as outlined in the trust document. Borrowing from an irrevocable trust is possible only in those situations where provisions have be written into the trust document describing when the trustee is allowed to make loans from the trust.
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Instructions
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Consult with the trustee or trust attorney to see if the loans are allowed at all. This can be determined by reading the trust document. Look for any loan provision clauses.
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Complete a loan note if you find that the trust will indeed permit borrowing. The trustee or trust attorney will be able to access a template or draw up the note. Most such provisions will allows secured loans at current interest rates.
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Sign the loan note and obtain the funds.
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Repay the loan to the trust, including principal and interest. Upon the borrower's death, the loan must be paid in full by his estate to the trust.
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Tips & Warnings
A loan from an irrevocable trust reduces the estate value and can reduce federal transfer taxes owed. Heirs of the trust get repayments of the loan without concern over estate taxes.
