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CLG Helps Son Prove Father Provided Gifts, Not Loans to be Repaid to Estate

On Behalf of | Mar 16, 2012 | Estate & Trust Litigation |

If you are having issues with an estate or trust dispute, the attorneys at Chenoweth Law Group (CLG) can help you and your family navigate this difficult time. Our attorneys are experienced in estate & trust litigation, and will work diligently to ensure that you obtain the estate assets that you are entitled to.

One question that often comes up in such disputes is: When a parent gives money to his son or daughter prior to his or her death, are those payments treated as gifts or loans to be repaid to the estate upon the parent’s death?

Recently CLG successfully protected the interests of an injured veteran in a trust litigation suit in Multnomah County Circuit Court. In the case, our client and his sister were co-trustees of a trust established by their father. The trust specified that the assets were to be divided equally between the siblings. In dividing up the trust assets after the father’s death, the sister claimed that a number of the father’s disbursements to the son over the last fifteen years were “loans” (not gifts) that needed to be paid back to the trust or deducted from his share of the trust assets.

At trial, CLG argued that the father’s estate plan was silent as to the transfers made to our client and that there were no promissory notes, written instruments, or oral statements indicating the father’s intent to treat the transfers as loans.  The father kept a meticulous ledger of his financial transactions, including transfers to his children.  The ledger listed a few loans to his children, but almost all entries indicated that the money was for particular expense items (without indicating that the money was a loan).  Further, the father’s attorney testified that he told the father that in order for advances to his children to be treated as an asset of his estate, he needed to execute a promissory note as evidence of his intent.  The attorney also testified that the father considered these disbursements to be gifts.

The court was persuaded that the father intended to treat his children equally and had in fact done so for a number of years, assisting both financially as needed.  Specifically, before the sister got married and became part of a stable, two-income family, the father provided her with significant financial assistance. In contrast, our client sustained a combat injury during the first Iraq War that required surgery and prolonged rehabilitation.  This injury limited our client’s ability to work in his chosen field-law enforcement-and so when he was again able to work, it was at a lower paying security job.  The court was persuaded that in making disbursements to the son over the years, the father was simply supplementing our client’s income during the time that he was injured, rehabilitating, and working a lower paying job.

The court ruled that there was insufficient evidence to categorize the transfers as loans and that the evidence established that the father was just helping out a son in-need.  Although the transfers to the son exceeded the annual exclusion for gifting to children and required the filing of federal gift tax returns, the father did not file any returns.  The court was not persuaded by the sister’s argument that the father knew the federal gift tax return rules and that he would have filed returns if he had intended his disbursements to the son to be gifts.  Thus, despite the fact that the father did not file any federal gift tax returns, the court concluded that the father’s transfers to the son were gifts. Therefore, the court granted our client’s motion for judgment of dismissal based on the insufficiency of the evidence presented by the sister.

Although each estate or trust is unique, our attorneys are dedicated to helping you resolve your dispute as quickly as possible. For help with estate & trust litigation issues, please call Chenoweth Law Group at 253-200-5991 to schedule a consultation.

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