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other would lend money. In 1994, Hillgren was paying decedent
10-1/2 percent interest whereas decedent was paying Hillgren
8-1/2 percent. Separate loan accounts were maintained for loans
between decedent (doing business as LKHP, the amended trust, or
Sea Shell) and Hillgren (doing business as Seaward). One account
tracked the amounts borrowed by decedent from Hillgren, and
another account tracked the amounts borrowed by Hillgren from
decedent. The balances in the two accounts were reported
separately in the general ledger and financial statements of LKHP
and the amended trust. Sea Shell’s balance sheets for 1987
through 1994 did not reflect accrued interest on the loans
between decedent and Hillgren, nor was interest included in the
balances of these loans when computing the net asset value of
LKHP as reported on decedent’s estate tax return. The accrued
interest on the loans from Seaward to Sea Shell was not paid
until December 1997, and the accrued interest on the loans from
Sea Shell to Seaward was not paid until 1998.
In December 1993, decedent sold a house, and the proceeds
were disbursed to Seaward as the $20,000 remaining principal on a
loan and $265,000 as a new loan to Seaward. At the time that the
BLA was signed, if the balances in the accounts were netted,
Seaward owed more money to Sea Shell than Sea Shell owed to
Seaward.
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