Legal Memorandum: Trustees Power to Borrow Money in NY

Issue: Under New York law, when are trustees permitted to borrow money on behalf of the estate they are handling?

Area of Law: Estate Planning & Probate
Keywords: Trustees to borrow money; Executors
Jurisdiction: New York
Cited Cases: 22 N.E. 265
Cited Statutes: None
Date: 10/01/2009

Although New York’s Estates, Powers and Trusts Law does not authorize trustees to borrow money (other than mortgaging estate property), in Estate of Rudin, 234 N.Y.L.J. 87 (Sur. Ct. 2005) (no case number in original), the decedent left a “substantial estate” with “no liquidity.”  Thus, the executors had to borrow money to pay estate taxes and other administrative costs.  In addition, the executors had to redeem some stock from the decedent’s corporation to three trusts and then immediately liquidate the assets to repay the bank for the loan they had taken to pay the estate taxes and to set up a reserve to pay the capital gains tax.  The court found that the executors had acted properly, and although the decedent’s heirs challenged many of the actions taken by the executors, they did not challenge the executor’s authority to take loans to pay the estate taxes.

Similarly, in United States Trust Co. v. Roche, 116 N.Y. 120; 22 N.E. 265 (1889), the court approved a trustee’s borrowing money against an estate to pay state taxes.  Id., 116 N.Y. at 127.  The court noted that the loan did not increase (except for the sum obtained) the burden on the estate, “but prevented its total loss, which, but for this, or a like loan, would have been the inevitable consequence of the nonpayment of taxes.”  Id. The court observed that obtaining such a loan was in aid of the trust, lawful, and the expenses were a charge upon the […]

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