What are the potential tax issues surrounding a loan to a beneficiary during an Anaheim trust administration?

If you are administering an Anaheim trust, and loans were made to the beneficiary before your loved one passed away, certain tax consequences may be triggered. As the trustee, it is important that you understand these issues and handle them properly. Failing to do so could cost the trust valuable time and money—and may potentially lead to grounds for removing the trustee. While every situation is unique, the following are the general tax issues that may arise when a loan was made to a beneficiary:

  1. If the loan was not properly treated as a loan, there is a risk that it could be deemed a gift to the beneficiary.
  2. If the interest rate on the loan was not the minimum amount required by the IRS, this may trigger the IRS to try to classify the loan as a gift.
  3. The amounts owed to the trust or estate may be factored into the calculation of any potential estate tax owed by the estate.
  4. If the estate earns income from the interest payments on the loan, it may be subject to income taxation.

After carefully considering each of the above scenarios to determine how they apply to the administration of your trust or estate, consider contacting an experienced legal professional who can provide further guidance during the administration process. In some cases, you may also wish to consult with an accountant. To learn more about these issues, call our office today at (714) 459-5481 for a consultation.

James F. Roberts
Founder and owner of the Law Office of James F. Roberts and Associates, a premiere estate planning law firm