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If I give money back to a revocable Trust as a loan paid, will I or the benefactor still owe gift tax?

Los Angeles, CA |

My father wrote me a check from a Revocable Trust for a substantial amount of money. If I give the money back, will my father, or I, have to pay gift tax? Will the Trust be restored if the money is replaced within a few months of the transaction?

Attorney Answers 3

Posted

Given that you are looking for a tax opinion, Im not sure anyone on this board will give you a direct answer. In addition, relying on something said from this board would not protect you if that opinion is wrong. If the gift was substantial, you dad has the funds to pay a tax or estate planning attorney for an opinion.

With that said, when the gift was made, if it was complete, it was complete. Giving the money back could be treated as a gift from you to your dad.

With all that said, why the need to repay? In addition to $14K annual exclusion, your father is entitled to an exemption of $5.25M for lifetime taxable gifts and transfers at death.

So if you father has not used up the 5.25M exemption, there would be no gift tax due, but a gift tax return would need to be filed.

In addition, unless the gift was conditioned as a "net gift" the gift tax, if any, is the obligation of the donor, your father.

The general advice above does not constitute an attorney-client relationship: you haven't hired me or my firm or given me confidential information by posting on this public forum, and my answer on this public forum does not constitute attorney-client advice. IRS Circular 230 Disclosure: In order to comply with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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Posted

I don't understand your question. If you repay a loan, there is no tax. I suspect there are additional bad facts you do not mention. In that case, I would personally consult counsel, who can review all the facts with you, for advice. Good luck.

I am licensed in California only and my answers on Avvo assume California law. Answers provided by me are for general information only. They are not legal advice. Answers must not be relied upon. Legal advice must be based on the interplay between specific exact facts and the law. This forum does not allow for the discussion of that interplay. My answer to any specific question would likely be different if that interplay were explored during an attorney-client relationship. I provide legal advice during the course of an attorney-client relationship only. The exchange of information through this forum does not establish such a relationship. That relationship is established only by personal and direct consultation with me followed by the execution of a written attorney-client agreement signed by each of us. The communications on this website are not privileged or confidential and I assume no duty to anyone by my participation on Avvo or because I have answered or commented on a question. All legal proceedings involve deadlines and time limiting statutes. So that legal rights are not lost for failure to timely take appropriate action and because I do not provide legal advice in answer to any question, if you are an interested party you should promptly and personally consult with an attorney for legal advice. Also, see Avvo's terms and conditions of use, specifically item 9, incorporated by this reference

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9 comments

Charles Adam Shultz

Charles Adam Shultz

Posted

Mr. Daymude is correct. I may have been reading between the lines. If this real was a short term loan, and repaid, there is no gift tax issue. Whether interest was paid or not, because its an its a loan between family members, interest is implied and your tax would have to pay income tax on the interest even if not paid.

Asker

Posted

There are no unmentioned bad facts. I was given a check, I cashed it, now I am giving it back because my dad asked me to. Also, if I don't cooperate with his request I stand to be taken out of his will and lose a lot more than I have now.

Michael Raymond Daymude

Michael Raymond Daymude

Posted

It seems there was miscommunication between the two of you. I do not see any tax issues, unless a gift tax return was filed which would up to your father to deal with, if you give the money back as requested under your exact stated facts.

Michael Raymond Daymude

Michael Raymond Daymude

Posted

If you earned interest on the money, of course, you would have to report that as income during the appropriate tax reporting period.

Asker

Posted

He told me if the money is put back in the Trust now, it will avoid probate when he dies, and no tax will have to be paid on the money that is distributed. But if I keep it, there is a tax of 35%, which greatly diminishes the amount.

Charles Adam Shultz

Charles Adam Shultz

Posted

Based on the above I don't see tax issues for you. Your dad may have some but they are his issues. Nest not to get involved

Charles Adam Shultz

Charles Adam Shultz

Posted

He is misinformed. Since the gift is cash there is no difference if this was given during life or death. The difference is who gets the benefit of the funds during life.

Asker

Posted

Thank you for the input. When he gave me the money, he was in the hospital for a heart procedure. He did not know that tax would have to be paid on the money, it came from a trust he set up for me and my siblings. He lives in Massachusetts, I live in Los Angeles.

Charles Adam Shultz

Charles Adam Shultz

Posted

Okay. Glad that he is on the mend. You should add that your dad lives in Massachusetts to your questions to get input from MA attorneys. Regardless, you should be fine under your information provided.

Posted

Attorneys Shultz and Daymude are correct. It is impossible to know the answer without reviewing the underlying documentation. Was this a gift from your father in which he filed a federal gift tax return? Was this a loan from your father, which is evidenced by a promissory note? Was there neither a gift tax return nor a promissory note? Whatever the case, your father should be retaining an experienced lawyer who can provide him with the necessary advice as to how to best handle this matter. Good luck to you.

This information is presented as a public service. It should not be construed to be formal legal advice nor considered to be the formation of a lawyer/client relationship. I am licensed in Connecticut and New York and my answers are based upon the law in those jurisdictions. My answer to any specific question would likely be different if I were to review a client's file and have the opportunity to interview the client. Accordingly, I strongly urge you to retain an attorney in your jurisdiction with respect to any legal matter.

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