California Irrevocable Trust Loans FAQ

A Californian irrevocable trust loan is a mortgage or hard money loan whereby the trust, not the beneficiary, is the borrower, and the loan is typically secured by California real estate or other trust-owned assets.

The trustee applies for a loan on behalf of the trust, for the benefit of the beneficiaries.

The lender reviews the trust agreement, verifies the trustee has the authority to borrow, and then the lender underwrites the loan based on the value of the property value.

Yes, California law allows irrevocable trust loans against trust-held assets such as real estate, as long as the trust documents explicitly authorize the trustee's borrowing power against those assets.

The trustee applies on behalf of the trust, for the benefit of the beneficiaries. 

Yes, if permitted by the trust agreement, an irrevocable trust can guarantee a loan using trust-owned assets such as real estate as collateral.

Most banks avoid lending to irrevocable trusts because of:

• Legally complexities
• Limited trustee authority
• Strict internal bank lending policies
• Lack of clarity regarding ownership  
• The underwriting process is lengthy and often requires legal review

Private money lenders are typically the preferred financing option for California irrevocable trust loans, as they offer more flexibility, faster funding, and less bureaucracy than banks.

Under California law, a trustee has a fiduciary duty to act in the best interests of the trust and its beneficiaries. 

Borrowing money from an irrevocable trust is permitted only if the irrevocable trust document specifically allows it.

This process is closely regulated and can sometimes require beneficiary consent or court approval. 

Yes, irrevocable trusts may borrow against trust-held assets such as real estate in California as long as the trust agreement authorizes the trustee's borrowing power to encumber trust assets.

If the trust documents explicitly permit borrowing, the trustee is the only person able to authorize a loan. Some trusts also require beneficiary consent or court approval.

If the irrevocable trust does not authorize borrowing, no loans can be taken out against any assets held within the trust.

An irrevocable trust loan allows a trust to access liquidity while still keeping assets inside the trust. 

Key benefits include:

• Access liquidity without selling assets
• Liquidity can be used for maintenance, repairs, or to buy out other beneficiaries
• Preserve estate planning structure
• No need to transfer property out of trust
• Faster approvals and more flexibility with private lenders

• Trust agreement
• Certificate of trust
• Trustee identification
• Property appraisal
• Title report
• Insurance

When borrowing against a property in California, most private lenders allow broad use, including but not limited to purchases, refinances, renovations, buy-out of other beneficiaries' ownership stakes, business expenses, or debt payoff.

Yes, the trust document dictates what forms of borrowing are allowed.

Interest rates for irrevocable trust loans are primarily based on the risk profile of the transaction, not just personal credit. Lenders typically consider:

• Loan-to-value (LTV)
• Property type and condition
• Amount of equity in the property
• Exit strategy (sale, refinance, long-term hold, etc.)
• Market conditions
• Complexity of the trust structure

• Single-family homes
• Multi-family properties
• Commercial buildings
• Land
• Mixed-use properties

Some trusts restrict the use of borrowed funds; it’s important to review the trust document to understand what type of borrowing is permitted.

Yes, a common exit strategy used by borrowers is to later refinance properties into a traditional long-term bank loan.

Yes, an irrevocable trust loan can be used to purchase real estate if the irrevocable trust holds title to the property and the trust agreement authorizes real estate acquisitions and borrowing.

• Revocable trusts are easier to obtain bank financing for
• Irrevocable trusts typically require private or hard money lenders

If you want to borrow against a property held in a revocable trust, most banks treat it like a standard personal loan, whereby the grantor will usually need to provide income statements, a credit score, and tax returns.

A bank lending to an irrevocable trust is generally more difficult because the grantor doesn't own the property, and therefore, the lender must look at the trust documents to see if the Trustee has the power to borrow money.

The lender may foreclose on the property.

Hard money lenders are known for their ability to fund irrevocable trust loans in 5 to 7 days, assuming the borrower has all the paperwork in order.

Most irrevocable trust loans have term durations of 12 to 24 months and are generally include a 3 to 6 month prepayment penalty, although this can sometimes be negotiated with the hard money lender.

Yes, an irrevocable trust loan can be used to pay off debt, such as mortgages or liens as long as the trust agreement specifies borrowing is permitted for funds to be used in that manner. 

Many borrowers use these loans to consolidate debt or to refinance existing trust-owned properties.

Most hard money lenders will finance up to 75% of the property value. Meaning on a $1 million property, they will lend up to $750,000. This is commonly referred to as the loan-to-value ratio (LTV), which in this example would be 75%.

Deciding factors for lenders often include property condition, location, and use of funds.

Typically, hard money loans are interest-only loans, and therefore, a balloon payment is due when the loan matures. Common forms of repayment include refinancing with a bank or selling the property.

Yes, defaulting on an irrevocable trust loan could result in foreclosure with would most likely reduce trust assets.

Yes, common fees for an irrevocable trust loan include:

• Origination Fee: The lender’s fee for processing and underwriting the loan (often 1%–3% of the loan amount). Points are typically lower for larger loans
• Appraisal Fee: Cost to determine the value of the property (typically $500–$1,500 depending on location)
• Escrow Fee: Paid to the escrow company for coordinating the closing (usually a few hundred to a few thousand dollars)
• Title Insurance: Certifies property ownership and protects the lender against title issues.
• Legal / Trust Review Fee: Payment to an attorney to review the trust agreement and ensure the trustee has the legal authority to borrow

Lender fees vary lender by lender, with factors such as property type and condition playing a major role. Most borrowers can expect total closing costs to range between 2% and 5% of the loan amount.

While requirements vary by lender, most irrevocable trust loan applications require:

• Complete trust agreement, including any amendments
• Certificate or abstract of trust
• Trustee identification
• Borrowing resolution or trustee authorization
• Property information: Address, rent roll, purchase contract if applicable)
• Title report or preliminary title
• Property insurance
• Entity documents (if an LLC is involved)
• Exit strategy 

A hard money lender will analyze the value of the collateral property.

The property securing the loan remains collateral and may be foreclosed upon.

Sometimes, but not always. Many lenders require personal guarantees from trustees or beneficiaries.