Legal Question in Wills and Trusts in New York
Loan Forgiveness
Mom died w/out will. 4 heirs - one appointed as admin. 5 yrs ago Mom lent me $160K for a home. Lawyer drew up a contract (term 30 yrs/ 9% int.) with clause that loan bal forgiven upon Mom's death. I signed contract. Copy sent to Mom with a note that she should file the mortgage agrmt at County Court House to be official. Mom never filed it. However, I made monthly loan pymts per loan terms & she filed income tax rtns with these pymts as income. The Estate Admin wants to reduce my portion of the remainder Estate assets by the forgiven loan bal. He thinks loan balance is considered an advancement of my share of the Estate - although not written in loan contract.Was the loan agrmt not valid because it was never filed it at the Courthouse? If so, should it have been considered a gift to me when orig given? If so, should it be excluded from the Estate assets on Form 706 and taxes not paid on it?
Do my loan pymts to my Mom & her reporting them to IRS constitute a constructive contract?
If the loan is valid, is it true that in NYS, unless specifically written into the contract that the loan was an advancement on my portion of her Estate, that my brother has no right to remove this amount from my share of the remaining Estate assets?
2 Answers from Attorneys
Re: Loan Forgiveness
The failure to record the agreement at the court house is not a factor in detrmining your rights.
The heart of your claim is Mom's intentions and how they were expressed. In proving your claim you can't use testimony of what Mom said; evidence from the drafting lawyer and others, the documents, etc. must establish the forgiveness.
If, as you say, the document provided for foregiveness, then you case is that much stronger.
If the forgiveness is establsihed, the unpaid loan is extinguished and disregarded for distribution purposes. There are estate tax ramifications depending on the size of the estate.
If you fight this, I strongly recommend that you retain counsel.
Re: Loan Forgiveness
Unfortunately, I cannot give you a definitive answer without reviewing both the contract and the mortgage.
It sounds like your brother is trying to cut down your share of the estate, but I can't be sure without reviewing the documents.
Because of the potential complexities of this situation, you should consult an attorney. If your mother intended the $160K to be an advance on your inheritance, then it should be charged against you. If she did not, it should not. A qualified attorney could review the documents and see what your mother's stated intention was.
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