An irrevocable trust can get a loan, but not from the usual mortgage channels. Because the trust is a separate legal entity and the grantor has given up control of its assets, conventional home loans backed by Fannie Mae and Freddie Mac are off the table. Trustees instead borrow from portfolio lenders, commercial lenders, or private lenders that underwrite the trust’s own assets and income. Whether the trustee even has the power to sign for the debt depends first on the trust instrument and, if that is silent, on state law.
Does the Trustee Have Authority to Borrow
The trust instrument is the first place to look. If it contains a clause allowing the trustee to borrow money, pledge assets as collateral, or encumber trust property, the legal path is straightforward. Many well-drafted trusts include broad administrative powers that cover borrowing.
When the document is silent, state law fills the gap. A majority of states have adopted some version of the Uniform Trust Code. Section 816(5) gives a trustee the power to borrow money, with or without security, and to mortgage or pledge trust property for a period that can extend beyond the life of the trust itself.1Uniform Law Commission. Uniform Trust Code Section 815 reinforces this by granting trustees all powers over trust property that an individual owner would have, subject to the trust’s terms and fiduciary duties.
A trustee who borrows without proper authority risks personal liability for breach of fiduciary duty, and beneficiaries could challenge the loan in court. Before signing anything, confirm the borrowing power in writing, ideally with a trust attorney.
What Kinds of Loans Are Available
Fannie Mae’s Selling Guide explicitly limits its trust exception to inter vivos revocable trusts created by credit-qualifying individual borrowers.2Fannie Mae. Inter Vivos Revocable Trusts An irrevocable trust does not meet that requirement because no individual borrower retains ownership or control of the property. Many non-qualified mortgage programs also exclude irrevocable trusts from eligibility.
That leaves a handful of alternative paths:
- Portfolio loans. Banks and credit unions that keep loans on their own books set their own underwriting criteria, and they can lend directly to an irrevocable trust based on the trust’s assets and income.
- Commercial loans. When the trust holds investment real estate such as rental homes, apartment buildings, or commercial buildings, a commercial mortgage is often the best fit. Underwriting focuses on the income-producing capacity of the property itself.
- Private or hard-money loans. For short-term needs like rehabilitation or bridge financing, private lenders may fund loans secured by trust assets. Interest rates are higher and terms shorter, but approvals come faster.
- Lines of credit. Some banks offer asset-based lines to trusts with substantial investment portfolios, using securities or other liquid assets as collateral.
Because irrevocable trusts sit outside the conventional mortgage market, interest rates on trust loans typically run higher than what an individual borrower would pay for a standard home loan. How much higher depends on the lender, the collateral, and the trust’s financial profile.
What Lenders Look At
The trust is the borrower, so lenders focus on the trust’s own numbers rather than any individual’s credit score. Key factors include:
- Loan-to-value ratio. Many portfolio and commercial lenders cap this at roughly 65% to 75%, though the exact limit varies by lender and asset type.
- Trust income. Rental income, dividends, interest, and business distributions flowing into the trust all factor into the analysis. Lenders look at whether the trust’s net income comfortably exceeds the proposed loan payments.
- Asset liquidity. A trust rich in real estate but short on cash may struggle to meet payments without selling core holdings. Lenders want enough liquid assets to cover payments through a rough stretch.
- Trust structure and terms. The lender will review the trust instrument to confirm borrowing authority and to understand the trust’s duration, distribution requirements, and any restrictions that could affect repayment.
Newer trusts, or those without much income history, draw more scrutiny. Expect requests for larger down payments, shorter terms, or additional collateral.
Personal Guarantees and the Gift Tax Trap
When the trust’s income and assets alone do not satisfy the lender, the bank may require a personal guarantee from a beneficiary or the original grantor. That means the individual agrees to repay from their own assets if the trust defaults, and the lender will run a full credit check and income verification on the guarantor.
Guarantees carry a tax risk many people miss. The IRS takes the position that guaranteeing a loan for someone else, including a trust, can constitute a taxable gift. The reasoning is that the guarantor has transferred something of economic value, their creditworthiness and personal liability, to the trust without receiving anything in return. If the trust could not have obtained the loan on its own, the IRS may recharacterize the guaranteed amount as a gift from the guarantor to the trust beneficiaries.
For 2026, the annual gift tax exclusion is $19,000 per recipient, and the lifetime estate and gift tax exemption is $15,000,000.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A guarantee on a large loan could consume a meaningful portion of the guarantor’s lifetime exemption or trigger a gift tax return filing. Talk to a tax advisor before signing.
Documents the Trustee Needs
An irrevocable trust needs its own tax identification number, called an Employer Identification Number, for banking and tax reporting. If the trust does not already have one, the trustee applies through the IRS using Form SS-4. The form asks for the trust’s legal name as it appears in the trust instrument, the type of trust, and the responsible party’s information.4Internal Revenue Service. Instructions for Form SS-4 The EIN functions like a Social Security number for the trust and appears on every loan document.
The lender will also ask for a certification of trust, a condensed summary of the trust instrument confirming the trust’s legal name, its creation date, the current trustee, and that trustee’s authority to enter into financial transactions. It lets the trustee keep specific distribution terms and beneficiary details private while giving the lender the verification it needs.
Beyond those two, prepare:
- Current financial statements listing all assets and liabilities held under the trust’s EIN, including brokerage accounts, real estate, bank balances, and any existing debts or liens.
- A recent professional appraisal if real estate secures the loan.
- Income documentation, including trust tax returns (Form 1041), rental agreements, and dividend statements.
- The full trust instrument, which some lenders request in addition to the certification so their legal team can review borrowing authority.
Missing paperwork is one of the most common reasons trust loan applications stall. Trust loans also take longer to underwrite than a standard mortgage, since the file usually goes to a specialized commercial team that reviews the trust document alongside the financials.
Tax Treatment of the Loan
Loan proceeds are not taxable income to the trust. A loan creates an obligation to repay, so there is no net gain, just cash offset by debt.
Interest paid on the loan may be deductible on the trust’s return. Federal regulations allow a deduction for interest paid or accrued on indebtedness during the taxable year.5eCFR. 26 CFR 1.163-1 – Interest Deduction in General Whether the trust can claim the deduction depends on how the borrowed money is used. Interest on debt used to acquire or improve investment property is generally deductible, while interest traced to tax-exempt investments or certain personal purposes may be limited or disallowed.
Grantor trusts are a special case. Where the grantor is still treated as the owner for income tax purposes, the tax consequences flow through to the grantor’s personal return rather than staying at the trust level, which affects who claims the interest deduction and how the loan activity appears on filings.
If the Trust Was Set Up for Medicaid Planning
Families that created an irrevocable trust partly for Medicaid protection should be cautious. Medicaid eligibility for long-term care depends on income and asset limits, and new financial activity within the trust can draw scrutiny from the state Medicaid agency.
Loan proceeds themselves are generally not treated as income for benefits purposes, since they carry an offsetting repayment obligation. How the funds are used matters more. If borrowed money is distributed to a beneficiary, that distribution could count as income or an available resource for that person’s eligibility. Placing a new mortgage on trust property also changes the trust’s net asset value, which can affect how the state evaluates the trust during a Medicaid application.
The Medicaid look-back period for asset transfers, including transfers to or from a trust, is 60 months before a long-term care application. A trust transaction that Medicaid views as a transfer for less than fair market value during that window can trigger a penalty period of ineligibility. Rules vary significantly by state, so consult an elder law attorney before borrowing against a trust designed for Medicaid protection.