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Understanding Trust

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Idaho-Bob

Junior Member
What is the name of your state (only U.S. law)? Colorado

My wife had a great Aunt that died and left a Trust to my wife’s mother. The trustee of that trust was my wife’s father until his death in 2008 and is now my wife’s brother.
Back in 1987, my wife and I went to college. We asked her father for a loan to go to school. We had asked that the loan be set up like a normal student loan, with interest and a 6 month forbearance / deferment once we got out of school. We finished our schooling in Dec. of 1992. We talked with her father about paying back the loan. We were told that the loan was to be interest free. We tried to protest, that we wanted to be fair and pay our fair share. The loan remained interest free.
Being the struggling college graduates, we sporadic payments towards the loan, from 1993 to 2001 totaling $3550, which reduces our balance to approximately $15k. In 2001, my wife and I were looking to move our children into a better school district. We approached her father (trustee) at the time and explained our situation. We explained that we’d like to move into a better school district, but also the student loans were weighing heavily on us. We arranged to pay whatever we could on the student loans if anything, and take out a bridge loan to purchase the house. It was understood that we could not make payments to both the bridge loan and the student loan. If we couldn’t pay anything towards the student loans, we would just continue to pay the bridge loan amount until the student loans were paid off. Since this bridge loan has been taken out, my family has been struck with a series of issues. Lost job and unemployed for 1.5 years, bankruptcy and diagnosis of MS.
My wife’s father died in 2008. Her brother took over as the trustee of the trust. While going through the records of the trust, he came upon our student loan and discovered that they were undocumented. He asked us for any and all paper work we had on the loan and we provided what we could. He then explained to us that their father had made an error in giving us an interest free loan. He explained that he wanted to determine a compromise that would be fair to both the trust and my wife and I. My wife and I agreed and awaited the terms of the loan. We figured a good compromise was going to be that the loan would change from an interest free loan to an interest bearing loan effective when her dad had died. That made complete sense to us, since he seemed to be in error offering us the interest free loan and us wanting to do the right thing. What turned out is that the new trustee (wife’s brother) has accessed interest back to the inception of the loan. So essentially has turned an interest free loan of $15k into a nightmare $86k loan. I can and will bet my life that my wife’s father, had not intended for this loan to turn into this nightmare.
My question is; Isn’t there any legal precedent that allows the trust to look at the situation, as errors were made on both sides and determine that the fair thing to do for both parties would be to adjust the loan from the death of my wife’s father when the error was discovered? What legal recourse do we have that will prevent us from losing our family and everything we have worked for? Any suggestions?
 


FlyingRon

Senior Member
Is there some sort of loan document that was written when you took out the loan or subsequently modified it?

Unless there was some stipulation that you were to pay interest, there's hardly any justification for the new trustee to demand you do so back to the beginning of time. I suspect your offer is more than gracious (frankly, I'd make them prove you even are obligated to do that).
 

tranquility

Senior Member
I agree with Flying Ron and would like to add a couple of twists.

The first is that such a loan may be in violation of the trustee's fiduciary duties if there are other beneficiaries.

The second (I am not entirely sure here but would do some research if I were preparing the trust return.), is that there may be some imputed income to the trust for the interest which should have been charged.

While there are a lot of words in the post and I didn't read each carefully, that would be my business take--assuming the loan was allowed by the trust document in the first place.
 

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