Learning that a loved one protected their estate with a trust should bring peace of mind. But when the person entrusted with that protection—the rustee—becomes the source of risk, that sense of security can quickly collapse. Discovering that a trustee may be using trust funds for their own personal needs can transform grief into a financial crisis, threatening both your future security and your family’s legacy. It’s natural to ask: Can a trustee borrow money from a trust in California? The answer is almost always no. With only narrow and highly specific exceptions, a trustee is prohibited from using trust property for personal gain.
This conduct is not a harmless mistake; it is a serious violation of the trustee’s most fundamental obligation: the duty of loyalty. At Gokal Law Group, we are your unwavering legal advocates, prepared to hold self-dealing trustees accountable and fight to restore what is rightfully yours.
Can a Trustee Borrow Money from a Trust in California?
No, borrowing from the trust for personal use constitutes self-dealing. This prohibition is grounded in the duty of loyalty and the duty to avoid conflicts of interest, two cornerstone principles of a trustee’s fiduciary obligations under California law.
“A trustee is not allowed to borrow money for their own benefit, and if they do, they are likely breaching their fiduciary obligations,” explained Abbas Gokal, Partner at Gokal Law Group. “Beneficiaries should understand that a trustee has a legal duty to safeguard trust funds, keep those funds separate from their personal assets, and never use trust property for personal purposes.”
This principle is codified in the California Probate Code 16004(a), which provides that a trustee must not use or deal with trust property for the trustee’s own profit or for any purpose unrelated to the trust.
Related Article: Can a Trustee Withdraw Money from a Trust for Personal Use
The Three Core Duties Violated by Self-Dealing
When a trustee borrows money from a trust for personal purposes, such as funding a vacation, making a down payment on a home, or pursuing a personal investment, it is considered self-dealing.
This conduct violates multiple non-negotiable fiduciary duties that a trustee is legally required to uphold, including the duties of loyalty, impartiality, and prudent management of trust assets:
- Duty of Loyalty: A trustee is legally required to place the interests of the beneficiaries above all else, including their own. Borrowing money from the trust directly violates this duty by creating a conflict of interest, turning the trustee into a debtor to the trust, and placing their personal interests in opposition to those of the beneficiaries.
- Duty to Keep Assets Separate (No Commingling): A trustee is required to keep trust property entirely separate from their personal assets. Using funds from the trust for personal purposes constitutes commingling, which is a clear breach of the trustee’s fiduciary duties under California law.
- Duty to Administer for Trust Purposes Only: Trust property is intended to be managed exclusively for the benefit of the beneficiaries, in accordance with the terms of the trust. Any personal loan taken by the trustee has no connection to the trust’s purpose and is therefore unauthorized and a breach of fiduciary duty.
Related Article: What is Trustee Misconduct?
When Can a Trustee Borrow Money from a Trust in California?
A trustee may be authorized to borrow money on behalf of the trust, but only if the loan is strictly for a trust purpose and authorized pursuant to the terms of the Trust, such as taking out a mortgage on a trust-owned property to pay for necessary repairs or to facilitate a tax-advantaged buyout between beneficiaries.
This is fundamentally different from the trustee borrowing for their own private benefit.
If a Trust beneficiary has questions about Trust-related transactions, including transactions where a trustee has borrowed money from a trust, the beneficiary can request this financial information, and the Trustee will be legally obligated to provide it.
The only scenario where an irrevocable trust’s assets could be used to secure a loan is if:
- The loan serves a bona fide trust purpose (for example, funding a beneficiary buyout). Trustees may use or encumber trust assets only for purposes that directly benefit the trust or its beneficiaries. A personal loan for the trustee’s own needs does not qualify. Legitimate examples include:
- Funding a beneficiary buyout
- Investing in trust assets (if permitted)
- Paying debts or expenses of the trust itself
- The trust document explicitly authorizes the trustee to encumber trust assets for that purpose. California Probate Code section 16002 and related provisions allow a trustee to act only within the powers granted by the trust instrument. If the trust explicitly authorizes the trustee to pledge or borrow against trust assets for a valid trust purpose, it is allowed. Without that authorization, using trust property to secure a loan is typically unauthorized and a breach of fiduciary duty.
Even when a loan serves a legitimate trust purpose and the trust document grants authority, beneficiaries may still need to consent to the transaction.
Further, even if consent is not strictly required, obtaining it is often wise to avoid potential conflicts or accusations of misconduct. Under no circumstances does a trustee have the right to treat trust assets as a personal line of credit or use them for personal gain.
Related Article: CA Trust Laws: When a Trustee Does Not Follow Trust Terms
Is a Trustee Taking Money from a Trust? We Can Hold Them Accountable.
So, can a trustee borrow money from a trust in California? (Almost always) No, they cannot. Any attempt by a trustee to bypass the legal prohibition on self-dealing by taking a “loan” from the trust constitutes a clear breach of fiduciary duty. If you are a beneficiary and suspect that the trustee has borrowed money, made a personal gift to themselves, or otherwise used trust funds for personal profit, you have the legal right to demand accountability and protect your inheritance.
At Gokal Law Group, we specialize in litigating these hotly contested disputes. We know the red flags, from missing payments to a sudden lack of communication, and how to use the California Probate Code to our clients’ advantage. We relentlessly advocate to secure a court order that can:
- Compel an immediate accounting to expose any improper transactions.
- Remove the self-dealing trustee and appoint a neutral fiduciary.
- Surcharge the trustee, forcing them to repay the lost funds, often with interest, from their own personal assets.
You deserve a dedicated legal partner to guide you through this complex process and fight for the security of your inheritance. Don’t let a breach of trust jeopardize your financial future. If you suspect trustee self-dealing, contact Gokal Law Group today for a confidential consultation. We are your trusted partners in Southern California for all personal fiduciary litigation matters.
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