Informal loan and estate

In 2000, my husband and his father entered into an informal situation regarding the purchase of an RV. My father-in-law paid for the RV, but all paperwork was in my husband's name (purchase agreement, title to RV, etc.) There was never any written agreement regarding paying back the loan or any other such terms. Payment arrangements were very informal with the payment amounts and dates of payments varying from month to month. These informal arrangements were satisfactory to both parties. Approximately 2 years later and with half of the "loan" paid off, my husband's labor union went on strike; this strike lasted for close to seven months. During this time of financial strain, my husband sat down with his dad to discuss the situation regarding the continued payments on the RV. During this discussion, my father-in-law orally forgave the debt by telling my husband "not to worry about making any more payments", that the RV was a gift. Again, nothing was ever put into writing. Also, nothing else was ever said about the RV.
Now, sadly, my father-in-law passed away in July of 2006. At the time of his death, there was a revocable living trust in place that established his present wife as the trustee of his estate.(This wife is not my husband's mother)Two weeks ago, my husband and I received a letter from the wife's lawyer requesting payment for the balance due on the RV. My question is: Since there was never any written loan agreement and since the debt was forgiven orally by my late father-in-law, does the wife have any legal claim to the balance "still owing" on the RV or to the RV itself?

Laymans take:

Personally I think its up to the estate to bear the burden of going forward to show that there was a loan or unpaid portion of any loan etc.

SM and attorney are NOT there to serve hubby and I would NOT provide them with ounce of ammunition or details that could be held against me in any fashion.

If there was an oral loan and an oral forgiveness of same and there were but two people in the room I sure as heck would not supply the other side one bit of ammunition!

Your post suggests a few technical loose ends as to if RV was a gift back when, or loan forgiveness was a gift more recently, and sure as heck if hubby responds with some version of details it could be twisted. For example to admit a loan begs the question of prove it was paid down. To say it was forgiven begs the question of prove it and so forth.
BIG CAUTON: to say that I was told --'don't worry about the loan' is by itself is NOT a clear forgiveness of the loan, it could be taken two ways and I sure would not use wrong words in wrong place. Others could easily take it to mean pay me later when you can!

Me, I'd limit my response to a very very short question of what loan and what balance do you mean. Anything more that that is an invitation for trouble--and you next step essentially requires that you run it past paid estate legal counsel!

It may be perfectly clear to hubby that Dad forgave the loan--but if he allows the camel to get his nose under the tent it won't read that way for long! (And I'm presuming hubby is right as to his version.)

Caution, BTW does hubby stand to benefit under the will or trust? If he does he wants to be darn careful that executor /trustee does not do any creative math to merely deduct for the nonexistant loan.

Technically there is an arguement that forgivensss of debt is income -but a gift is not -and hubby needs to be careful not to go near that can of worms (via a copy of his 1040 for example vs Dad's form 709 which I doubt either person really bothered to fill out in contect of this matter--if we are talking sums of 10K or more.)

"At the time of his death, there was a revocable living trust in place that established his present wife as the trustee of his estate."

Trustee of the trust; the estate is a legally separate entity.

"Since there was never any written loan agreement and since the debt was forgiven orally by my late father-in-law, does the wife have any legal claim to the balance "still owing" on the RV or to the RV itself?"

The fact that there was no written loan agreement is meaningless; evidently, the wife kept track of the payments made if she's asking for a specific balance. Unfortunately, if your husband can't prove FIL forgave the debt (no one but you and/or the husband as a witness, I take it), yes, she can expect your husband to repay the forgiveness in writing.

I assume your FIL left everything to his wife in his will and in the trust and there's nothing coming to husband that the debt can be offset against?

We're short on some details, but let me disagree.

If in fact Dad forgave the loan about 2003-4 time frame AND hubby stopped making payments entirely in that time frame forward I think there is a solid arguement that the loan was forgiven and supported by the acts of the parties in detrimental reliance to same. The balance was forgiven.

(My guess is SM knew about forgiveness but kept her temper under control until later!)

But on the otherhand if hubby made an occassional payment after that time period the exact reverse may be argued, that there was a reaffirmation of the debt., the balance remains due

Now what facts at your end fit which picture?

On a different level, there may be statutues of time limits or size limits as to enforcement of oral contracts which might be in hubby's favor in your state.

If Dad supposedly forgave the debt just ahead of death with no witnesses it might be all to convenient, bad taste--but if he did it sometime ago and hubby acted as if it was forgiven I think that has an entitrely different taste.

Simply stopping payments wouldn't equate to a good forgiveness argument in most courts. Could just as easily be construed as a default. (If I were wife, I could argue that I don't know when payments stopped; son-in-law could have been making payments in cash.)

Statute of limitations on oral contracts in Indiana is to my knowledge 6 years. Even if you can prove that payments weren't made after some time in 2002 (and you can't prove a negative here), wife has plenty of time to pursue on behalf of estate.

I didn't say MIL would necessarily win if the estate sued him for the money; I'm just saying she's free to pursue the money.

I'' bet it boils down to which side is more credible--and so far I would not put any money of MIL's side--

But then again we haven't heard her side.