by R. Daniel Mann
Question: My father set up an irrevocable trust fund with my three sisters, brother, and I as beneficiaries. A specialized company (probably not Jewish, although our trust is handled by Jews) serves as trustee. I “borrowed” money interest-free from the fund to buy a house, but it is unlikely I will have to return the loan, as what I received will probably end up counting as most of the money coming to me. I want to turn the loan into interest paying, so that I will, for the sake of my siblings’ part, compensate the fund for the missing appreciation because I took the money. Is this a violation of ribbit? If so, may I use a heter iska to make it permitted, and with whom would I do it?
Answer: We must determine an irrevocable trust’s halachic status. The trust enables your father (the settlor or grantor) to bequeath money to his children in what he views as a financially advantageous manner. He gives funds to (a) trustee(s) (the company), who legally owns the funds, which are explicitly earmarked for certain purposes, specifically to provide assets for the beneficiaries (you and siblings) at the trustee’s discretion. A major halachic question is whether the trust fund obviates the halachot of inheritance. This would be either because money (perhaps even for a revocable trust) has been given to a third party with instructions (beyond our scope) or because, especially for an irrevocable trust, the money no longer belongs to the grantor, so that the halachot of inheritance cannot take effect. The emerging consensus of poskim seems to be that yerusha does not apply to the contents of the trust (see Pitchei Choshen, Yerusha 4:(34)). (If the trust is a farce, and the grantor fully controls the money, the matter is more problematic).
Ribbit exists when Jewish owned money is lent to another Jew with interest. It does not help if a non-Jew carries out the transaction as a guardian, if the financial impact relates to the Jewish owner (Shulchan Aruch, Yoreh Deah 168:24). However, in this case, assuming the trustee really controls the money, the halachic status likely accepts the legal one (based on dina d’malchuta and situmta) – that your father no longer owns the funds. It is even clearer that the beneficiaries, who never owned the money, do not own it yet. They have made no halachic kinyan, and the law does not recognize them as owners. When and how much they will receive depends on various consequences and the trustee’s decision. Their only legal right is the ability to sue the trustee for breach of fiduciary obligations. Thus, the trustee is not merely handling the funds; it is the owner, albeit with conditions attached.
Even if halacha were not to recognize the trustee’s ownership of property ceded to it, due to a lack of valid kinyan or because it is sometimes a farce, you probably still do not have a problem. After all, the trustee sets up a bank account which the grantor and beneficiaries cannot touch. Even if they were to sue the trustee in beit din and win, the trustee would owe money, but the value (theoretical not coins or property) in the account is likely the trustee’s. Therefore, the actual money you received as a loan, was the trustee’s.
What is the ribbit status of the trustee company? The great majority of poskim (see Torat Ribbit 17:52), say that the laws of ribbit apply to a lender who is a corporation. However, most poskim (see Brit Yehuda 30:16; Torat Ribbit 17:64) rule there are no ribbit problems if Jews own a minority share, irrespective of the workers who handle a given fund (see Shulchan Aruch ibid.). Therefore, if the company is mainly of non-Jewish ownership, you have no problems. If you are concerned with possibility of Jewish ownership, you can do a heter iska with them. This is slightly more complicated than usual because you need to convert an existing loan into an iska investment (see Brit Yehuda 40:23), and we are willing to guide you through the process. (Even if you avoid heterei iska when they obviate the spirit of the law, this case is unobjectionable.)