Location: Maricopa Co., AZ (and Oklahoma Co., OK)
I am the Beneficiary of an irrevocable Trust, with my grandparents, let’s call them Jack and Jill, as the Co-Trustees. I live in Maricopa Co., AZ. They live in Oklahoma Co., OK. In 2021 they purchased a home which was transferred to the Trust in 2022. I have lived at this residence since that time and have paid all bills, taxes and maintenance on the property. It is the only asset in the Trust. At that time, Jill’s Trust created a Promissory Note for the value of the real estate and named my Trust as the Maker. My grandparents made cash deposits to my Trust in 2023 and 2024, which were then transferred to Jill’s Trust as payments against the Promissory Note.
There’s been a falling out between myself and my grandparents, and I received a letter from their attorney stating that payment in full against the Note is due in 60 days. This is a right granted to the Payee in the Note, however it doesn’t really affect me since Jack and Jill are Trustees on both my Trust and Jill’s Trust, so they are simply moving money between accounts. A statement from the attorney shows a final payment was made yesterday, so the home no longer has a Note against it.
I am affected in that the letter states I have two options:
– Buyout the house: If I want to retain the house, I can transfer the funds to pay off the Note and they will make an in-kind distribution of the property to me.
– Sell the house: If I don’t buyout the Note, I can sell the house. After payoff of the Note, the net proceeds would be put in the Trust, the Trust terminated and distribution of those funds made to me.
This is where I’m confused. Since the Promissory Note was between the Trustees, and that Note is now paid in full, wouldn’t the full value of the home be the asset of my Trust? I realize that as Trustees they actually own the asset and they could evict me and force the sale of the home, but can they deduct the payments towards the Note against the value of the Trust? Would it not be considered a gift to the Trust?