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Loaning money to family members is rife with perils, both for the giver and for the receiver.
Sibling squabbles can spark either side to regard the transaction as unfair. If a family member falls on hard times, the lender might not get paid back. And the IRS can take a dim view of things if it suspects the deal is a disguised present intended to evade taxes.
Throw in a board director at Bank of America, a contentious divorce, multi-million dollar apartments in Manhattan and Chicago, handwritten notes never intended for public eyes and hints of potential mortgage fraud perpetrated on JPMorgan Chase and Morgan Stanley, and things get ugly.
That’s what is unfolding with an affluent Chicago couple in the midst of splitting up. The legal drama centers upon R. David Yost, an independent director at Bank of America and a former CEO of drug wholesaler AmerisourceBergen. As the dispute plays out in a federal court, it’s highlighting the thorns embedded in a favorite estate planning strategy used by the wealthy to transfer money to their heirs.
‘Ruh roh’
In September 2020, Yost sued his son-in-law, Morgan Carroll, in federal district court in Chicago to demand repayment of more than $8 million in loans he made to the couple years earlier. Only three months earlier, Yost’s daughter, Anne, had filed for divorce from Carroll.
Last fall, son-in-law Carroll fired back. In a counterclaim filed against Yost in September 2021 in the same case, Carroll asserted that the monies weren’t loans but instead disguised gifts that Yost made in order to evade federal taxes.
“As that famous philosopher Scooby-Doo would say, ‘ruh roh,'” Joel Crouch, an estate planning and business lawyer at law firm Meadows Collier in Dallas, wrote in a blog post about the case.
The Bank of Mom and Dad
Intra-family loans, in which one family member lends money to another in exchange for a promissory note to pay the money back, are often used to help an heir buy a home or start a business. For loans of $10,000 or more, the lender must charge a minimum interest rate, document things and require repayments. The rate can’t be lower than the applicable federal rate, a gauge that changes monthly and is...