WHEN IS IT A LOAN? WHEN IS IT AN ADVANCEMENT? WHEN IS IT A GIFT? – April 2009 Issue

In the case of Poss v. Turner, the Tennessee Court of Appeals dealt with the issue of the legal effect of when a parent transfers money to a child. Mrs. Turner, the decedent, was the payee on a check for $16,000.00. She endorsed it and gave it to her son, Charles Turner, who also endorsed it and deposited it into an account at the Circuit Court Clerk’s Office to pay a delinquent judgment against him for child support arrearage. When Mrs. Turner died, the Executrix of her Estate sued Charles Turner for the $16,000.00 check amount claiming that it was a debt owed by Charles Turner to his mother’s estate. The Trial Court found in favor of the Estate that the check was a loan and found that Charles Turner was “an unbelievable witness, unworthy of belief.”

The Court of Appeals reversed the Trial Court’s judgment holding that the mere fact that the mother transferred $16,000.00 to her son did not, without more, establish an indebtedness. The Court of Appeals wrote that Tennessee follows the view in numerous other jurisdictions that “an unexplained transfer of property from a parent to a child renders a rebuttable presumption that a gift was intended.” The Court of Appeals defined a gift as “a voluntary transfer of property to another made gratuitously and without consideration.” Correspondingly, the Court of Appeals held that the $16,000.00 check did not constitute an enforceable debt of Charles Turner to his mother’s Estate.

 

The Estate also argued that the check was an advancement of Charles Turner’s anticipated inheritance, and the amount of the advancement should be offset against Charles Turner’s inheritance. The Court of Appeals ruled that the Doctrine of Advancement did not apply in this circumstance because it does not apply to wholly testate estates in Tennessee.

 

[Will Bell Comment: Advancements can be provided for in Wills in Tennessee. However, for a lifetime transfer to be considered an advancement to a person who will be a beneficiary under a Will, the Will must clearly identify the lifetime transfer as an advancement.]

 

MY ADVICE: Advise your clients to be careful and consider fully whether they intend money they are giving to a family member to be a gift, a loan, or an advancement. Proper documentation and legal processes should be followed to clarify what the intent is of the person making the transfer.

 

 

RAINEY, KIZER, REVIERE & BELL, P.L.C.

 

William C. Bell, Jr.

 

Source: Rainey, Kizer, Reviere & Bell, P.L.C.

 

 

Tags: estates