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review the allocation. They tell us to review the bona fides of
the loan. Decades ago, we held that the “bona fides of a loan
are primarily established by the intention of the parties that
repayment will be made pursuant to the terms of the agreement.”
Estate of Ribblesdale v. Commissioner, T.C. Memo. 1964-177. The
Commissioner isn’t really contesting the existence of that
intention--it is uncontroverted that Kimberly’s trust was paying
interest to Clyde. We also specifically find that all the
parties to the trust arrangement intended that the loan would be
repaid if either of the stated conditions--Kimberly’s death or
need to get on Medicaid--were met. In Estate of Labombarde v.
Commissioner, 58 T.C. 745, 753 (1972), affd. 502 F.2d 1158 (1st
Cir. 1973), we held that the children’s support payments to their
mother were not a loan because there was no note evidencing the
supposed debt and no interest was ever paid. Here, the facts are
in complete contrast: The note was executed and admitted into
the record, and Clyde was paid interest every month on the
principal amount of the loan.
The Commissioner does make a good point by noting that the
Probate Court specifically mentioned at the settlement hearing
only $415,000 as compensation to Clyde. He concludes from this
that the extra $1 million allocated to Clyde in the papers
approved by the Probate Court transformed the allocation into
nothing more than an “uncontested, nonadversarial, and entirely
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