Repayment of debt to an estate by a co-beneficiary.

[Temoja]

What is the name of your state (only U.S. law)? Utah

Decedent had 3 children. At the time of death, Child A owed the decedent for a business loan. Instead of paying the loan to the estate to be distributed to the co-beneficiaries (Children B and C) Child A is now sending a check directly to B and C with a request for SSN's and instructing them that if they cash the check, it is taxable income to them. What would give rise to a taxable transaction as it pertains to Children B and C? Could Child A be attempting to shift his tax burden to the co-beneficiaries? Is there any legal basis for this? Thanks in advance.

 

[tranquility]

"Repayment" of a "loan" is not taxable income to the recipient. Payment of interest on the loan is. The loan is owed to the deceased, hence the estate, and the amount to be repayed should paid to the estate. If there is taxable income, it will either be paid by the estate or, in some cases, distributed to the beneficiaries. (I say some cases as there is a lot missing.)

By asking for SSN, it seems A intends to deduct the repayment which makes me think a 1099-int is coming. There is no need to otherwise get the SSN of the beneficiaries by A.

I'd refuse the demand for an SSN and send a lawyer letter from the estate demanding repayment of the loan. (If appropriate. It may not actually be due now.) More facts would be needed for taxability and what the correct act should be taken. But, paying directly to the beneficiaries is not correct unless and until the rights to collect the loan is distributed to the beneficiaries.

 

[LdiJ]

What is the name of your state (only U.S. law)? Utah

Decedent had 3 children. At the time of death, Child A owed the decedent for a business loan. Instead of paying the loan to the estate to be distributed to the co-beneficiaries (Children B and C) Child A is now sending a check directly to B and C with a request for SSN's and instructing them that if they cash the check, it is taxable income to them. What would give rise to a taxable transaction as it pertains to Children B and C? Could Child A be attempting to shift his tax burden to the co-beneficiaries? Is there any legal basis for this? Thanks in advance.

Repayment of a loan principal would not result in a taxable event. Repayment of loan interest would. Is A paying back the loan in full or making installments over several or many years? Yes, its possible that A could be attempting to shift his tax burden to the co-beneficiaries...and no, there would be no legal basis for it other than again, interest income.

 

[curb1]

Another part that might be of interest is that if "A" pays the estate, then "A" would get part of the money back with the distribution of the estate. While paying "B" and "C" directly none of the payment would come back to "A". Perhaps this was considered, but maybe not.

How much is involved? How much principal, how much interest and what is the time of payback? There might be some concern that paying back the estate over a long period of time would make it difficult to close the estate in a timely fashion.