I have a loan that is being conducted under a living trust. As per section 226.3 (a)(2) "an extension of credit to other than a natural person, including credit to government agencies or instrumentalities" Does a "Living Trust" fall under this definition? In regards to 226.15 Right of Rescission, does a "Living Trust" fall under that right if the individuals of the trust live in this home and it is their principal dwelling? Looking at the commentary 2(a)(11) 2. Rescission rules indicates a natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss.

Thanks for your assistance.

Tina A Sweet-Williams
Gold Country Bank, NA
Marysville, Ca. 95901
mailto:tsweet@goldcountrynb.com

Tina: Ive never seen a reg interpretation or definitive answer to your question, but heres how we handle it:

1) If the living trust is a grantor trust under IRS Regs (defn: a trust in which the creators of the trust are also the initial trustees and the initial beneficiaries), then we treat it as if it is consumer credit and provide all Reg Z disclosures.

2) if the living trust isnt a grantor trust under the IRS Regs (defn: typically the creators of the trust either arent the initial trustees or the beneficiary [such as a trust for a disabled child]), then we dont treat as Reg Z consumer credit.

Our thinking is that a grantor trust is really an estate planning device in which the owners of property transfer their property to a trust so it can operate more like a will than a "true" trust.

When you have a "true" trust and the creators have either given up immediate control of trust assets (because they arent the trustees) or ownership of the assets (because they arent a beneficiary), then we dont consider it to be consumer credit subject to Reg Z.

I would really be interested in how others are handling this situation. It isnt unusual for us to see several of these deals per month and the numbers seem to be increasing.

Take a look at Commentary Sections 2(a)(11)3 and 3(a)8. If the beneficial interest holders of the trust are the occupants, it seems a lot like the land trust analysis which says, in essence, to look at the substance of the transaction to decide whether there is a "consumer" involved. Thus, we look at the details of each "borrower" and "mortgagor" in the transaction regardless of whether the ownership is in a revocable trust, nominee trust, family LLC, a QPRT, a family limited partnership etc. Usually we err on the side of giving the RoR even though title is in an entity.

Thank you so much for those answers. What a tremendous help you were.

Again
Thank you

Tina A Sweet-Williams
Gold Country Bank, NA
Marysville, Ca. 95901

mailto:tsweet@goldcountrynb.com