One common issue I have seen arise in estate administration matters is whether a pre-death payment by a parent to a child was a gift, a loan or an advancement.
In the case of a gift, the child would clearly not have to pay back the parent for the gift or have their potential inheritance reduced.
In the case of a loan, the child would need to repay the principal to their parent plus some amount of interest. A loan might or might not affect a child's inheritance.
In the case of an advancement, the parent's trust or will should specify that this pre-death payment is a credit against the child's future inheritance.
Invariably, the recipient of the pre-death payment will argue that it was a gift.
Conversely, the non-recipients of the pre-death payment, i.e. almost always the other children, will argue that it was a loan, or at worse an advancement.
A recent unpublished appellate decision focused on this issue, i.e. was a pre-death payment from a parent to a child a gift or a loan.
"Patricia passed away in February 2016, leaving a will. Eight years before her death, Patricia transferred $600,000 to Dana. Plaintiffs sought a ruling that Patricia lent the money to Dana and that she was required to pay it back to the estate. Dana asserted the money was a gift."
"The court filed its SOD on June 6, 2019. It included a description of the transaction and the evidence on which it relied about the nature of the transaction and Patricia's intent. The court confirmed its oral pronouncement at the May 10 hearing that Patricia gifted the $600,000 when she transferred it to Dana in 2008. The court in its SOD considered each of the six factors necessary for a gift and found each was proven by clear and convincing evidence. In so doing, the court noted there was conflicting evidence on the issue of whether the $600,000 transfer was a gift or a loan. The court nonetheless found Patricia's intent in 2008 at the time of transfer was to make a gift to Dana. The court denied the petition and awarded costs to Dana."
The trial court's ruling was upheld by the appellate court. It found, based upon the evidence, that the parent intended to make a gift of $600,000 to her daughter in 2008.
Estate of Walsh, San Diego County Superior Court case # 37-2017-00016491-PR-PW-CT.
