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#1719459 - 07/12/12 01:07 PM Loan to pay inheritance taxes?
Sage Offline
Platinum Poster

Registered: 08/05/05
Posts: 914
Would you consider a loan to pay the inheritance taxes on a farm to be a consumer loan?

Lending Compliance
#1719495 - 07/12/12 02:07 PM Re: Loan to pay inheritance taxes? [Re: Sage]
gd779 Offline
Junior Member

Registered: 01/04/11
Posts: 40
I've asked this question here several times and no one has ever responded, so I hope you have better luck.

It seems to me you have to look at this under Regulation Z, under Regulation X, and under the SAFE Act. You might get different answers under each regulation. To be safe, I treat them as consumer loans, but I'm not sure that is the "right" answer.
Disclaimer: This message is not legal advice and may not represent the views of the institution that I work for.

#1719549 - 07/12/12 03:23 PM Re: Loan to pay inheritance taxes? [Re: Sage]
Doug Hendrickson Online
Power Poster

Registered: 10/01/09
Posts: 3619
In the hopes of stirring some discussion:

I'm not the expert, but it would seem to me that paying inheritance taxes would qualify as using the funds for personal reasons and it would be a consumer loan.

I tried to reason that if the inheritance taxes were directly linked only to the value of the farm, and that paying them would allow him to operate a business on the farm, then it could possibly be argued that it's a commercial loan. However, I don't have enough expertise to know if that would be permissible. I'd treat it as a consumer loan.
I hear and I forget. I see and I remember. I do and I understand.--Confucius

#1719558 - 07/12/12 03:34 PM Re: Loan to pay inheritance taxes? [Re: Sage]
raitchjay Online
Power Poster

Registered: 10/15/09
Posts: 5122
Loc: OK
I'm no expert on this subject either, but i had the opposite thought Doug. I was looking at the inheritance taxes as being a "hazard" (can't think of a better word) of now owning a farm, which ought to throw it into the agricultural exemption of Reg. Z. If the loan were to pay taxes on a car dealership, i would think that would be exempted as a business purpose loan and it's the same theory to me. But I'd be interested as well if others have a different thought.
"I have yet to see a piece of writing, political or non-political, that doesn't have a slant..."

E.B. White

#1719581 - 07/12/12 03:52 PM Re: Loan to pay inheritance taxes? [Re: Sage]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 42345
Loc: Bloomington, IN
An inheritance tax is a tax one pays for inheriting money or property. To the best of my knowledge, I'm not a tax or estate expert, the tax is levied against the individual and is a personal liability, I would therefore have to opine any loan to pay the tax would be a consumer purpose loan.
The opinions expressed are mine and they are not to be taken as legal advice.

#1719664 - 07/12/12 05:23 PM Re: Loan to pay inheritance taxes? [Re: Sage]
rlcarey Offline
10K Club

Registered: 07/16/01
Posts: 54254
Loc: Galveston, TX
Hmmm, I thought the inheritance tax was assessed against the estate? There is no personal income tax on inherited money.
The opinions expressed are my own, take them or leave them.

#1719673 - 07/12/12 05:39 PM Re: Loan to pay inheritance taxes? [Re: Sage]
KPOC Offline
Gold Star

Registered: 07/09/12
Posts: 460
Loc: Greater Boston Area
True. Typically, taxes are paid out of the estate. In fact, many settlors will purchase life insurance in the amount of the estimated taxes, making the beneficiary(ies) whole upon death.

#1719675 - 07/12/12 05:39 PM Re: Loan to pay inheritance taxes? [Re: Sage]
Doug Hendrickson Online
Power Poster

Registered: 10/01/09
Posts: 3619
Apparently there are states that don't have an 'estate tax', but do levey an 'inheritance tax' on the person receiving the benefit; see last paragraph.

States Inheritance Tax Laws

States that currently collect a tax on inherited estate money or property are Connecticut, Maryland, Massachusetts, New Jersey, Nebraska, Pennsylvania, Oregon, Indiana, Kansas, Louisiana, Kentucky, and Iowa. Instead of imposing an estate tax in this situation, there are many states that impose an inheritance tax.

Since each state is likely to tax their residents differently, individuals can research the inheritance tax laws at their State Government website or hire the services of a professional tax attorney.

There are also many state governments that regularly update their inheritance tax guidelines, and many states are even considering completely dropping the inheritance tax. This is why it is important for taxpayers or their tax attorneys to keep up-to-date on the latest inheritance tax laws.

The process the states use to tax money or property that was inherited is a little bit different. States that have an inheritance tax do not require the money to come from the estate. Instead, they require that the individual who receives the inheritance to file and pay any taxes due on the money or property they inherited.
I hear and I forget. I see and I remember. I do and I understand.--Confucius


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