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Monies Owed to You
In General
Funding Monies Owed to
Clients When No Promissory Note Exists
Funding Promissory Notes
Putting the Debtor on Notice
Funding Secured Interests
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In General: From
time to time, it is not uncommon to find that a client has made a loan of money to a child
or to a third party. Generally, when a loan is made,
the debtor signs a promissory note. A promissory note is a written contract that specifies the terms
upon which the loan will be repaid. Because the promissory note is often the only
legally binding documentation that evidences the loan, it will be important that the promissory
note be assigned to the trust. If the client's promissory note is not
assigned to their trust, then future loan payments made by the debtor may be subject to
probate proceedings in the event of disability or death of the client.
Funding Monies
Owed to Clients When No Promissory Note Exists: Often when a client extends a
loan to a child or other family members, the legal formalities of signing a promissory
note may be overlooked. In this situation, the most conservative method of funding
this interest is to create a promissory note that names the trust as the lender.
NOTE: The exact language that must be contained in a legally valid promissory note will
vary from state to state. Consult your estate planning attorney with to determine the appropriate
format in your state.
Funding
Promissory Notes: A promissory note is funded through the use of
a legal assignment. The promissory note should be referenced
in the assignment and a copy of the original promissory note should be attached
to the assignment. We recommend that you consult with an estate planning
attorney with experience in trust funding to obtain an appropriate legal
assignment.
Putting the
Debtor on Notice: When a promissory note is assigned to a trust, it will
be important that notice be given to the debtor that they should continue to make payments
in accordance with the terms contained in the note. However, the debtor should be informed
that future payments should be made payable to the living trust. Your
estate planning attorney can draft a Notice of
Assignment of Promissory Note.
Funding
Secured Interests: In many circumstances, when money is loaned to a business or
an individual for business purposes, the lender may insist that they be
given a secured interest in the accounts receivable of the debtor or the debtor's
business. A secured interest is a formal recognition on the part of the debtor that is
generally recorded. It puts others in the business world on notice that any future
financial claims against the debtor will be subordinate to the claim of the
lender. NOTE: In
order to establish a security interest in an account receivable, there are specific rules
that must be complied with pursuant to Article 9 of the Uniform Commercial Code.
Consult your estate planning attorney for further information on security
interests.
When funding a promissory note that is secured by
a security interest, care should be exercised to also assign the security interest to the
trust as well. CAUTION: Due to
the legal complexities in funding a secured interest, we strongly recommend that
you consult with an estate planning attorney with trust funding experience.
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an Attorney with trust funding services
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