In article <leNIk.68937$Mh5.24998[at]bgtnsc04-news.ops.worldnet.att.net> ,
Gil Faver <rowdy'sboss[at]xxyz.com> wrote:
- quote -

I'd say that if a contract prevents the clause from being removed from
the will, then it's an enforceable loan. If the father has the right
to change his well and remove the clause, then it's not an enforceable
loan, but a gift.

Seth

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salmoneous[at]aol.com wrote:

- quote -

Not if the son wants to be legally entitled to be paid back. If the
father can change his mind, that would make it better. Better still
would be for father to leave a specific bequest (e.g. $15,000) rather
than saying $10,000 plus interest. If that's done, it should be
treated as a gift by the son to the father, and a gift by the father
to the son, for which no income tax would be due.

- quote -

The line is whether there is a legal obligation to pay. If part of a
payment looks like interest, tax will be imposed on the interest. If
it looks like interest it will be treated as evidence of an
obligation to pay.

Stu

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"Seth" <sethb[at]panix.com> wrote in message
news:gd05nt$bmo$2[at]reader1.panix.com...
- quote -

if the clause is put into the will as a condition to the son's giving the
dad $10k, then it is a loan and enforceable, even if the father changes the
will. Of course, proof will be an issue, and there will be a fight.

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In article <Xns9B365BE1CFBEDspamtraplexregiacom[at]130.133.1.4> ,
Stuart A. Bronstein <spamtrap[at]lexregia.com> wrote:
- quote -

Why do you say it's a loan? I see it as a gift; if the father later
had a fight with that son, or got suckered by some pseudo-religious
organization (etc.), there wouldn't be any enforceable obligation to
repay. Hence, no loan.

The arrangement is certainly legal.

Seth

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- quote -

Thanks. As a follow-up, is there any way to do this so the son doesn't
owe income tax on the interest? If one of the 3 sons is more generous
to the father in life, can't the father give that son a bigger piece
of the estate without there being any income tax? Where is the legal
line between a father repaying generously in a will, and a loan
requiring income tax? Note - to be clear, I'm asking where the legal
line is, not how to break the law.

Thanks again for the first answer,
Sal

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salmoneous[at]aol.com wrote:

- quote -

Legally there's nothing wrong with this. The lending son will need to
pay income tax on the interest received at the time. The interest rate
of 4% may be too low, so it might be a good idea to have a contract now
saying the same thing, using the interest rate allowed by the IRS for
this purpose (it can change every month, but you can look in a rate if
you put it in writing).

Stu

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Situation: Cash-poor father owns a home. One of his three sons gives
him $10,000. Father puts a clause in his will saying that when he
dies, the first $10,000 plus 4% interest goes to the one son. Then the
rest of the estate is split equally between the 3 sons.

Assuming the value of the estate is well under the estate tax
ememption, is this arrangement legal, and would there be any taxes
due?

Thanks,
Sal

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