Hypothetical:A rich old lady wants to buy a house for her deadbeat adult son. Matriarch has no tax exemptions left, so she will owe gift tax if she gifts son the house. But what if instead of receiving the home as a gift, son issues a note to Mom for the home's purchase price payable in 9yrs+ (for long-term AFR)? Looks good so far.BUT what if Mom also wants the note to balloon on her death if she dies before 9+yr maturity? She is elderly and could die tomorrow. Can the note still use the long-term AFR? OR is the note now a "contingent payment debt instrument" (CPDI) and thereby invokes the SEVERELY technical interest calculations under Treas. Reg 1.1275-4?Hypothetically.
just put property in a family trust lmao
>>60922147it's probably exempt as a straight inheritance
>>60922162Son is going to live in the house now (and rent-free) so it is still a gift to him even if held in trust. The son becomes a de facto trust beneficiary by living in the house rent-free. Mom (the trust's settlor and trustee) will owe gift tax on son's free rent. >>60922164She used all her exemption. See OP.
This is the "remote or incidental" contingency exception:"If a contingency is either remote or incidental, the debt instrument is not treated as a CPDI."BUT: For an elderly woman — particularly one with a short life expectancy — death within 9 years is neither remote nor incidental. So this exception likely fails.Thus, if the note requires payment on death, then the timing of the payment is materially contingent, and the CPDI rules are in play.
>>60922182That makes sense. Holy based. Thank you.
>>60922182don't help anons with their hypothetical homework they can ask chat gpt
>>60922182based
>>60922147>>60922175It’s insane that a fully paid off house that already was taxed on gets taxed again when it gets passed down to son.
>>60922252Go away schlomo
