What is the name of your state (only U.S. law)? Massachusetts
My father established an irrevocable trust in 2001 because his health was failing and he wanted to be able to qualify for Medicaid. In his trust there is a loan provision that is causing questions within the family as to how the loan interest is to be calculated. Should the interest be simple or compound? I hope someone in this forum can provide clarification for me.
The following paragraph contains the terms of the loan:
Article X. Special Provisions. The following provisions shall apply to the trust established by this declaration:
Repayment of the Donor�s Mortgage Loan.
The Donor expressly acknowledges that he expects John Smith to pay off all or a portion of his outstanding mortgage loan of approximately $50,000 for the purpose of reducing the Donor's monthly expenses and to enable him to continue to occupy his residence at (Donor's address). The Trustee is directed to repay such funds advanced by John Smith or his estate with interest at the then prime rate as currently published in the Wall Street Journal or another equivalent index available at the time plus 1% (one percent) per annum from the time of disbursement(s) upon the earlier of (a) the sale of real property at (address); or (b) termination of this trust.
When the irrevocable trust was created there was an understanding between the lender and the donor that no payments would be requested by the lender or paid by the donor until the house was sold. There was no promissory note and no funds were given directly to the donor. The lender paid directly to the bank and the mortgage remained in the donor�s name. There was no assumption of the mortgage loan or transfer of existing mortgage to the name of the trust. This loan agreement was signed on the same day as the irrevocable trust was signed.
The house has sold and now the lender is demanding principal plus compound interest. I believe the payoff amount should be principal plus simple interest.
What Massachusetts statute covers this type of situation?
My father established an irrevocable trust in 2001 because his health was failing and he wanted to be able to qualify for Medicaid. In his trust there is a loan provision that is causing questions within the family as to how the loan interest is to be calculated. Should the interest be simple or compound? I hope someone in this forum can provide clarification for me.
The following paragraph contains the terms of the loan:
Article X. Special Provisions. The following provisions shall apply to the trust established by this declaration:
Repayment of the Donor�s Mortgage Loan.
The Donor expressly acknowledges that he expects John Smith to pay off all or a portion of his outstanding mortgage loan of approximately $50,000 for the purpose of reducing the Donor's monthly expenses and to enable him to continue to occupy his residence at (Donor's address). The Trustee is directed to repay such funds advanced by John Smith or his estate with interest at the then prime rate as currently published in the Wall Street Journal or another equivalent index available at the time plus 1% (one percent) per annum from the time of disbursement(s) upon the earlier of (a) the sale of real property at (address); or (b) termination of this trust.
When the irrevocable trust was created there was an understanding between the lender and the donor that no payments would be requested by the lender or paid by the donor until the house was sold. There was no promissory note and no funds were given directly to the donor. The lender paid directly to the bank and the mortgage remained in the donor�s name. There was no assumption of the mortgage loan or transfer of existing mortgage to the name of the trust. This loan agreement was signed on the same day as the irrevocable trust was signed.
The house has sold and now the lender is demanding principal plus compound interest. I believe the payoff amount should be principal plus simple interest.
What Massachusetts statute covers this type of situation?
