Not sure what is fair.

[seair]

A Trust was set for my sister and I. Two years after it went into effect(death of last parent), I loaned the trust $25,000.(money left to me only) to purchase an additional property to the trust. Now a total of 4. May it be known that I agreed to split this money(25,000 total, not 50,000) with my sister at the death of our parent when she asked. (Thought I'd be fair). The trust has now decided to split equally all holdings between the two of us.
We've agreed on which 2 properties each of us will get. Over these 5 years since I've loaned the money, I've received all monthly interest payments . My sister asks that I owe her half the total which I agreed to. This property has gone to her. Does she owe me $12,500. after I pay to her her half of the interest to make it a fair deal? Or is that total($12,500.) included(cancelled out) when we divided the properties? The property in question was(is now) valued at $46,000. Due to my 2 properties worth more, I owe her $20,000. My thinking is that if I started with 12,500, shouldn't I end up with it?
Really stuck and would like to hear what others think.
Thanks.

 

[LdiJ]

A Trust was set for my sister and I. Two years after it went into effect(death of last parent), I loaned the trust $25,000.(money left to me only) to purchase an additional property to the trust. Now a total of 4. May it be known that I agreed to split this money(25,000 total, not 50,000) with my sister at the death of our parent when she asked. (Thought I'd be fair). The trust has now decided to split equally all holdings between the two of us.
We've agreed on which 2 properties each of us will get. Over these 5 years since I've loaned the money, I've received all monthly interest payments . My sister asks that I owe her half the total which I agreed to. This property has gone to her. Does she owe me $12,500. after I pay to her her half of the interest to make it a fair deal? Or is that total($12,500.) included(cancelled out) when we divided the properties? The property in question was(is now) valued at $46,000. Due to my 2 properties worth more, I owe her $20,000. My thinking is that if I started with 12,500, shouldn't I end up with it?
Really stuck and would like to hear what others think.
Thanks.

If you loaned money to the trust, then the loan should be repaid to you BEFORE the assets are divided between you and your sister. If you agreed to give your sister 1/2 of the money, then splitting the trust assets in half exactly, still accomplishes that.

Example:

Trust is worth 225,000. You loaned the trust 25k, you get your 25k back and you and your sister split the remaining 200k, 100k each.

Trust is worth 225,000. You gave your sister 1/2 of the 25k. You split the trust in half, you each get 112,500.

 

[OHRoadwarrior]

You also need to factor in repayment via the interest payments you have kept. Frankly, it appears you have embezzled those payments from the trust from a legal standpoint.

 

[seair]

If you loaned money to the trust, then the loan should be repaid to you BEFORE the assets are divided between you and your sister. If you agreed to give your sister 1/2 of the money, then splitting the trust assets in half exactly, still accomplishes that.

Example:

Trust is worth 225,000. You loaned the trust 25k, you get your 25k back and you and your sister split the remaining 200k, 100k each.

Trust is worth 225,000. You gave your sister 1/2 of the 25k. You split the trust in half, you each get 112,500.

Thank you for the quick reply LdiJ.
Just wish she would see it the same way.

 

[seair]

You also need to factor in repayment via the interest payments you have kept. Frankly, it appears you have embezzled those payments from the trust from a legal standpoint.

It appears you didn't read my post.

 

[OHRoadwarrior]

It appears you didn't read my post.

What part of you keeping the interest payments did I not read?

 

[LdiJ]

You also need to factor in repayment via the interest payments you have kept. Frankly, it appears you have embezzled those payments from the trust from a legal standpoint.

Where do you come up with the logic that interest payments on a loan are an embezzlement? The fact that she chooses to gift her sister 1/2 of the 25k does not make it any less of a loan to the trust. The fact that she chooses to gift her sister 1/2 of the interest payments paid by the trust does not make it any less of a loan to the trust.

It was quite proper, and wise for the loan to be formal and for the trust to pay interest on the loan. It would not have been proper for her to simply gift money to the trust.

 

[tranquility]

While I agree the loan (From what I'm seeing, the $12.5K) must probably be repaid before distribution, I'm still a bit unclear on the facts. Who is the trustee? Did the trust documents allow for a loan to purchase property? Why is the trust being distributed now?

I have a little bit of problem with the interest as well. If you and your sister are the only beneficiaries of the trust, what you are doing (if the trust is a complex one) is loaning yourself money and taking it from trust taxation to personal taxation. (Assuming the trust is earning income.) I'm not quite sure what is happening overall and, while I would not use the term OHRoadwarrior is, I could see some improper dealing here; again, depending on the facts. What is the required interest rate when one loans money to oneself?

 

[OHRoadwarrior]

As tranq does, I have issues with the legality of the dealings going on here. I am guessing OP was the Trustee and has been manipulating the Trust assets for their own profit. It then appears OP came here for a rubber stamp approval to show Sis. I am not so sure that rubber stamp should be forthcoming, absent a review by an independent 3rd party of the actual transactions that happened.

Where do you come up with the logic that interest payments on a loan are an embezzlement? The fact that she chooses to gift her sister 1/2 of the 25k does not make it any less of a loan to the trust. The fact that she chooses to gift her sister 1/2 of the interest payments paid by the trust does not make it any less of a loan to the trust.

It was quite proper, and wise for the loan to be formal and for the trust to pay interest on the loan. It would not have been proper for her to simply gift money to the trust.

 

[TheGeekess]

A Trust was set for my sister and I. Two years after it went into effect(death of last parent), I loaned the trust $25,000.(money left to me only) to purchase an additional property to the trust. Now a total of 4. May it be known that I agreed to split this money(25,000 total, not 50,000) with my sister at the death of our parent when she asked. (Thought I'd be fair). The trust has now decided to split equally all holdings between the two of us.
We've agreed on which 2 properties each of us will get. Over these 5 years since I've loaned the money, I've received all monthly interest payments . My sister asks that I owe her half the total which I agreed to. This property has gone to her. Does she owe me $12,500. after I pay to her her half of the interest to make it a fair deal? Or is that total($12,500.) included(cancelled out) when we divided the properties? The property in question was(is now) valued at $46,000. Due to my 2 properties worth more, I owe her $20,000. My thinking is that if I started with 12,500, shouldn't I end up with it?
Really stuck and would like to hear what others think.
Thanks.

US LAW Only.

 

[LdiJ]

While I agree the loan (From what I'm seeing, the $12.5K) must probably be repaid before distribution, I'm still a bit unclear on the facts. Who is the trustee? Did the trust documents allow for a loan to purchase property? Why is the trust being distributed now?

I have a little bit of problem with the interest as well. If you and your sister are the only beneficiaries of the trust, what you are doing (if the trust is a complex one) is loaning yourself money and taking it from trust taxation to personal taxation. (Assuming the trust is earning income.) I'm not quite sure what is happening overall and, while I would not use the term OHRoadwarrior is, I could see some improper dealing here; again, depending on the facts. What is the required interest rate when one loans money to oneself?

I disagree Tranq.

She is not the sole beneficiary of the trust. So she did not loan money to herself. She loaned money to an entity that partially benefits her, but partially benefits another party as well. There are no facts in place here either that indicate that the trust does not pass through its income to the beneficiaries.

Now, I agree that there could be other problems related to loaning the trust money (such as you indicated above), but purely focusing on the loan and the interest, I believe its perfectly proper.

 

[tranquility]

I disagree Tranq.

She is not the sole beneficiary of the trust. So she did not loan money to herself. She loaned money to an entity that partially benefits her, but partially benefits another party as well. There are no facts in place here either that indicate that the trust does not pass through its income to the beneficiaries.

Now, I agree that there could be other problems related to loaning the trust money (such as you indicated above), but purely focusing on the loan and the interest, I believe its perfectly proper.

If I own a C-corp and screw up and make money some year, can I loan it a bazillion dollars and clean out that profit and then get the principal repaid the next year? We'll make loan docks and everything.

Or, I make an irrevocable trust...well, I was going to build trustuser's dream trust scenario through loans and interest, but don't want to hijack the thread.

The bottom line is that it is not inherently wrong for a beneficiary to loan a trust money. However, there are so many shennagains that can happen, especially if that beneficiary is also the trustee (which is why I asked that question), more facts would need be known to judge the proper course.

 

[anteater]

There's something a bit "off" about this - loaning the trust money so that the trust (with multiple beneficiaries) can purchase a property?

Mr. Zulu! Shields up! Go to red alert!

 

[TheGeekess]

A Trust was set for my sister and I. Two years after it went into effect(death of last parent), I loaned the trust $25,000.(money left to me only) to purchase an additional property to the trust. Now a total of 4. May it be known that I agreed to split this money(25,000 total, not 50,000) with my sister at the death of our parent when she asked. (Thought I'd be fair). The trust has now decided to split equally all holdings between the two of us.
We've agreed on which 2 properties each of us will get. Over these 5 years since I've loaned the money, I've received all monthly interest payments . My sister asks that I owe her half the total which I agreed to. This property has gone to her. Does she owe me $12,500. after I pay to her her half of the interest to make it a fair deal? Or is that total($12,500.) included(cancelled out) when we divided the properties? The property in question was(is now) valued at $46,000. Due to my 2 properties worth more, I owe her $20,000. My thinking is that if I started with 12,500, shouldn't I end up with it?
Really stuck and would like to hear what others think.
Thanks.

What US state? (A question having been ignored twice now).

 

[LdiJ]

If I own a C-corp and screw up and make money some year, can I loan it a bazillion dollars and clean out that profit and then get the principal repaid the next year? We'll make loan docks and everything.

You can if the C-corp actually needs capital for something valid. Lets say that the C-corp makes widgits and gets an order that is 10 times higher than any other order and needs capital to buy the materials to make the widgits. Its perfectly valid to loan the C-corp money and to get repaid in a fairly short amount of time (when the corp gets paid for the widgits) You will also note from the original post that the OP made her loan to the trust 5 years ago.

Or, I make an irrevocable trust...well, I was going to build trustuser's dream trust scenario through loans and interest, but don't want to hijack the thread.

The bottom line is that it is not inherently wrong for a beneficiary to loan a trust money. However, there are so many shennagains that can happen, especially if that beneficiary is also the trustee (which is why I asked that question), more facts would need be known to judge the proper course.

I don't disagree that shennagains can happen. Or even that its possible that the whole thing was not quite proper even if no shennagains were intended.

My point was that a beneficiary making a loan to a trust is not inherently improper and definitely being paid interest on that loan is not inherently improper either. Neither of course would be embezzlement, as OHRoadwarrior stated.