forgiveness of loan from crut

forgiveness of loan from crut

Forum topic posted in Forum on 15 September 2008| 3 comments
audience: | last updated: 15 September 2008
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Joined: 07/24/2000
Points: 45
CRUT intends to sell business held by the trust. Part of the transaction involves the CRUT extending a loan to the seller's revocable trust and then forgiving the repayment of the loan. 1. can the CRUT make this type of loan to the buyer of trust assets 2. can the CRUT forgive repayment of any or all of the loan indebtness submitted by David Rando

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Joined: 10/11/2001
Points: 15
CRUT Loan
The CRUT can extend credit to an arms length buyer in order to liquidate CRUT assets, but if the extension of credit is to the CRUT grantor or another disqualified person, it would constitute a prohibited transaction. Even if it is to a non-disqualified person, if the terms of the extension of credit (maturity, interest rate, security for repayment, etc.) are not commercially reasonable, the transaction could constitute a breach of the trustee's fiduciary duty. Now, to the proposed forgiveness of the indebtedness -- what conceivable rationale could a prudent investor have for disposing of an asset without adequate consideration? And if a prudent investor would not do that, then the trustee of a CRUT cannot do it without AT LEAST breaching his/her/its fiduciary duty under state trust law, and perhaps not without engaging in a prohibited transaction. Certainly it would jeopardize (and how!) the CRUT's ability to perform its exempt function to the extent of THAT asset.
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Joined: 07/24/2000
Points: 45
CRUT Loan
An error in the facts. CRUT is selling assets and as part of the proposed transaction will extend a loan to the BUYER's revocable trust, then forgive the loan indebtness. 1. can the CRUT make this type of loan to the buyer of trust assets 2. can the CRUT forgive repayment of any or all of the loan indebtness
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Joined: 03/09/1999
Points: 90
CRUT Loan
Why wouldn't this be a breach of fiduciary duty to the trust? I wonder if the remainder charity or state attorney general has a position in your state to object to improperly trust assets? Is the buyer a disqualified person and would there be a 4941 problem?
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