Forgiven Loan

What is the name of your state? California.....I live in Colorado.

I live in a different state but I handle all the affairs for an older gentleman. I travel to California 3 times a year and spend a few weeks each time in order to make sure things are running smoothly. This older gentleman is now residing in an assisted living facility and has some dementia. I have a Trust Attorney and an Accountant that help me with his affairs. I am his "power of attorney" (agent in fact). I am also the Trustee of his Living Trust, his agent under his Advanced Health Care Directive and the Executor of his Will.

Several years ago this man made a personal loan to a friend of his for about 250 grand. He is paid monthly on this loan. I have the payment being made directly to the accountants office and they use this money as part payment for his expenses such as the rent at the rest home. This loan will be paid off at this rate in about another 9 years. I doubt he will live that long as he also has cancer even though I have not told him. It is prostate cancer.

The man he made the loan to is a very good man, very honest. The man I take care of is Ben and his friend is Doug. Well, when Doug's mother passed away she had left a certain amount of money to her church. It turned out that by the time she died there was NO MONEY. But, Doug wanted to honor her will so he borrowed the money (substantial) from Ben. He is now paying it back and it isn't easy on him. I can't forgive this loan while Ben is alive because he needs the money for expenses. Ben is beyond the point of handling his money or anything for that matter.

When Ben dies this money would become part of his residual estate. Ben obviously will no longer need these monthly payments and without them there is still plenty of money in other accounts to settle his estate and more than a million would be left over.

As Bens Agent in Fact I want to forgive this loan at Bens death. Obviously a POA terminates at the moment of death so I would need to do this before he dies. Once he is gone I don't think I can do that as the Trustee. Only while he is alive and I can act for him in any manner as the document states.

Hard to time things just right I guess and I was wondering if there was a way to make this loan forgiveable upon Ben's death so that Doug will not have to continue making payments to the estate when Ben won't be needing them. Both of these men have lead honest lives, with integrity. Doug has no idea I would do this but I think he deserves it.

Any ideas. Yes, I can just ask my attorney and the accountant but I am just curious about others ideas.

Oh, Ben has never been married so has no wife involved in this. He is a single man. Doug is married with kids but that really has nothing to do with this. Just didn't want anyone to think these two were a "pair". Far from that.

The loan is one of his assets and you would be depriving his estate of a substantial amount of money for reasons not in accordance with Ben's wishes. Anone who would stand to gain that money from the estate would have significant reason to file suit against you if they discovered this transfer.

What is YOUR relationship with doug?

You say that you handle his affairs and have a power of attorney and that he has some dementia. Has any court made any determination of his mental status or guardianship?

Has he been asked about how he wishes to handle this loan?

Talk to the attorney.

Some Random Guy said:

The loan is one of his assets and you would be depriving his estate of a substantial amount of money for reasons not in accordance with Ben's wishes. Anone who would stand to gain that money from the estate would have significant reason to file suit against you if they discovered this transfer.

What is YOUR relationship with doug?

You say that you handle his affairs and have a power of attorney and that he has some dementia. Has any court made any determination of his mental status or guardianship?

Has he been asked about how he wishes to handle this loan?

Talk to the attorney.

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If Ben wants to forgive the loan he has every right to do that. He is the only beneficiary of his trust at this time. Since he has given me the right to act on his behalf as his power of attorney I too can forgive this loan on his behalf. I have talked to Ben about this and explained the details. He has told me to do whatever I feel is right because he trusts my judgement.

I do not personally know Doug. (I do not like your insinuation here either) Have never talked with him. I do know who he is of course. As a child, my wife knew Doug. He was her Sunday School teacher. She hasn't spoken with him in probably 40 years.

The reason Ben made me his Power of Attorney, the Trustee of his Living Trust, his Agent under his Advanced Health Care directive is so no courts ever need to be involved with his affairs. It is my responsibilty and I have accepted that responsibility. The Advanced Health Care Directive does state that "if" a guardian were ever to be appointed by a court Ben wants it to be me.

As long as Ben is alive the beneficiaries he has named in his trust have no rights to anything in his trust. If there is nothing left in his trust the day he dies that is just the way it is. I intend to use his assets to take care of him while he is living. I have no desire to stretch it so that his beneficiaries have something after he dies. That is not my responsibility. My responsibilty is to take care of Ben and after he is gone it is my responsibility to disburse whatever is left over according to the terms of his trust. I will do just that.

Mike -

From this and your other posts, it seems that you are determined to skate on thin ice. If you try to do this, and one or more of the will/trust beneficiaries has a mind to, they will come after you.

Hopefully, the attorney will tell you the same thing.

I smell a skunk. This whole setup stinks. Why would "Doug" need $250,000 to "honor" his mother's will? That is phony, and you are not doing your job to perpetuate this hoax.

You said, "Well, when Doug's mother passed away she had left a certain amount of money to her church. It turned out that by the time she died there was NO MONEY. But, Doug wanted to honor her will so he borrowed the money (substantial) from Ben. "

Mike Green, I recall your other posts but am too lazy to go back and re-read them. If I recall correctly, you don't hold Ben's heirs in much esteem. One could assume that the feeling is mutual.

I think you are correct that Ben has every right to forgive the loan, or would have every right if he were mentally competent, which he apparently is not. As the person who holds his POA, you probably have the right to forgive the loan.

I agree that you have no responsibility to his heirs to maximize their inheritance; however, you do not have the right to squander his assets and you may be setting yourself up for that accusation if you proceed as you propose.

One thing the heirs could argue is that if Ben had wanted to simply give Doug the money, he would have done so at the time instead of making it a loan.

You have legal counsel - use it. If you choose to forgive the loan, you need to do it in a legally defensible way.

I do not personally know Doug. (I do not like your insinuation here either)

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I don't care if you don't like my insinuation. If you and Doug are best buddies, then you WILL be looking at a lawsuit led by a guy like this: http://www.californiaelderabuselawyer.com/

Your only hope of doing this is to have
a) clear and convincing evidence that Ben wants this
b) an arm's length relationship with Doug.
c) no financial benefit from making the transaction

las365 said:

Mike Green, I recall your other posts but am too lazy to go back and re-read them. If I recall correctly, you don't hold Ben's heirs in much esteem. One could assume that the feeling is mutual.

I think you are correct that Ben has every right to forgive the loan, or would have every right if he were mentally competent, which he apparently is not. As the person who holds his POA, you probably have the right to forgive the loan.

I agree that you have no responsibility to his heirs to maximize their inheritance; however, you do not have the right to squander his assets and you may be setting yourself up for that accusation if you proceed as you propose.

One thing the heirs could argue is that if Ben had wanted to simply give Doug the money, he would have done so at the time instead of making it a loan.

You have legal counsel - use it. If you choose to forgive the loan, you need to do it in a legally defensible way.

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Finally, a voice of reason and not accusation. Thank you and I agree with most of what you say here. As I stated in the beginning of this in my first posting I do have a Trust Attorney involved in all of this and everything carefully monitored and documented by an Accountant. I will go with their advice. It seems just about impossible to get anything but personal accusations based on what someone "thinks" or thinks they smell on this forum. I guess honest people are few and far between so people don't recognize that. But, the forum is good entertainment if nothing else

I am the voice of reason! heh. Don't hear that much.

Some Random Guy's list is good, but seem related to how everything is going to look and not the law. I think the heirs will sue if a person with a POA gives away a bunch of money. There are few things more motivating than someone standing in the way of free money, believe me.

Is the POA a durable power? If not, the OP may have no power to do anything period as there will be an argument the person is incompetent. If it is a durable power, even if it has the statement the attorney in fact can make a gift, many states require court oversight to do so.

The thing which troubles me the most is that this is a complex undertaking where the OP is clearly trying to dot all the i's and cross all the t's to make sure things are all legal like. I'm here to say there is virtually no way to do so under the present circumstances. There are questions of fact and law all over the place which would make most anything which happens an issue for the court. The principal could make a will using an attorney who will advise him alone without the OP present. If a well represented person makes a will forgiving a note at death, it is likely a court will accept that result. (The tax issues are something else entirely.)

Mike Green said:

...
As Bens Agent in Fact I want to forgive this loan at Bens death. Obviously a POA terminates at the moment of death so I would need to do this before he dies. Once he is gone I don't think I can do that as the Trustee. Only while he is alive and I can act for him in any manner as the document states.
...

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Mike, this is a sure-fire way to get yourself involved in a very expensive and nasty lawsuit.

Tranquility,

Yes, the POA is a Durable POA. It specifically states in powers of the Agent under (3)

and I quote, "Make a gift, grant, or other transfer without consideration to or for the benefit of the descendants of the principal (including the agent if he or she is a descendant of the principal) or a charitable organization, or more than one or all of them, either outright or in trust, including the forgiveness of indebtedness and the completion of any charitable pledges the principal may have made; pay any gift tax that may arise by reason of those gifts."

As I said earlier I do have a Trust Attorney who I consult before I do anything at all. I like to get opinions and I study as much of this type of stuff as I can so I don't look completely ignorant when talking with the attorney. However, it seems people on this forum like to interpret what "they" think is going on instead of sticking with the facts of the question itself. Not everyone is dishonest in this world. Not everything is as it appears to some either.

seniorjudge said:

Mike, this is a sure-fire way to get yourself involved in a very expensive and nasty lawsuit.

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SJ, thank you for your advice. We have talked before and I trust your advice and respect it. From what I have heard about my question it seems maybe this is not a good idea after all even though my intent is honorable. I surely do not want or need a lawsuit. I will go by my Attorneys advice.

Mike Green said:

SJ, thank you for your advice. We have talked before and I trust your advice and respect it. From what I have heard about my question it seems maybe this is not a good idea after all even though my intent is honorable. I surely do not want or need a lawsuit. I will go by my Attorneys advice.

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Your "intent" is totally irrelevant.

You are required by law to be more careful with this dough than you are with your own.

I would never be a POA or trustee since I know all the pain and anguish it causes.

Just a friendly tip: Do NOT do it!

"Make a gift, grant, or other transfer without consideration to or for the benefit of the descendants of the principal (including the agent if he or she is a descendant of the principal) or a charitable organization, or more than one or all of them, either outright or in trust, including the forgiveness of indebtedness and the completion of any charitable pledges the principal may have made; pay any gift tax that may arise by reason of those gifts."

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Well, *that* clears things up.

No, you cannot do what you propose unless "Doug" is a descendant of Ben. The POA does not give you the right and CA Probate Code Sec. 4264 prevents you acting as you desire without specific authorization in the POA.