Court Finds Interest Payable on Loan was Deductible

Vincent Duncan, the decedent, created a revocable living trust in 2001 (the “2001 Trust”). Years before, Duncan’s father created a trust naming Duncan as the beneficiary (the “Walter Trust”). Both trusts contained interests in oil and gas businesses. After Duncan’s death, the 2001 trust was divided into six subtrusts naming his children as beneficiaries. The trustee borrowed $6.48 million from the Walter Trust to pay the estate taxes. The loan had an interest rate of 6.7% and a fifteen year term.

The estate claimed a deduction for the value of the interest payable on the laon, and the IRS contested the deductible of the interest and assessed a deficiency. The IRS claimed that the loan was not required because the estate could have sold the Walter Trust oil and gas interests from the 2001 Trust at fair market value.

In Estate of Vincent J. Duncan Sr. et al. v. Commissioner

See Estate Loan Interest Deductible, Gift Law, Nov. 7, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.