I would say your interest rate is borderline on being FMV which IMHO would be the acid test to be passed in determinig whether or not this was a bona fide loan or a distribution.FMV interest rate is a subjective matter to a certain extent but to be on the safe side IRS provides some guidance in the form of interest tables that they say can be used. These tables are very complex and their seems to be many of them for different situations.I have never fully understood why so many - I just try to pass what I call the "smell test" - at five percent you may be just a little "stinky", but not to bad.To be on the safe side - would be bank prime rate.Real stinky side would be mmkt interest rate - say 4% - so you are in between.Be sure to dot your i's and cross your t's.Signed note .Recorded in local courthouse would be better.Make sure your trust document allows you to make this form of loan.In the event of any default on the note - immediate recognition of deemed distribution.Ahhh - the wonderful life of a trustee - so many decisions that can backfire.'Pete
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