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October 1992, when he was 73 years old, he sought financial
advice from his attorney, John M. Spath. Mr. Spath suggested
that decedent’s trust sell the restaurant and retail/office
properties to Michael in exchange for a SCIN. The key component
of the SCIN would be its provision that it would be canceled, and
no more payments would be due, if decedent died before it was
fully paid. Mr. Spath suggested that this arrangement would both
achieve decedent’s retirement goals and minimize the amount of
estate tax that would be payable on his death.
Decedent accepted his attorney’s advice, and the transaction
was carried out in December 1992 and January 1993. Michael
executed a SCIN in the face amount of $830,000 in exchange for
the two properties. The terms of the SCIN provided that Michael
would repay it in monthly installments over a period of 11 years.
The SCIN provided for the payment of interest at a rate which
increased every 24 months. The initial interest rate was 6.25
percent, and the rate increased by one half percent at each 24-
month interval, until reaching a final rate for the last 12
months of 8.75 percent. The SCIN also provided that, if decedent
died before the principal and interest had been paid, it would be
canceled and no more payments would be required.
Michael’s obligations under the SCIN were secured by a
registered mortgage on both properties. The documents effecting
the transaction, including the quitclaim deeds, the mortgage and
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