I've made loans to relatives. If they pay back the money w/no interest, then there is no tax (other than the original taxes paid on the money). If they don't, then it's taxable income to the borrower. If they pay it back with interest, the interest is taxable income to the lender. That's if I understand this correctly. And the whole question of gift taxes comes in, too, if it's not paid back.
My loan was paid back promptly with no interest. But over 3/4 of a million bucks? There are going to be some serious tax questions, and I'm guessing that's why there is a lawsuit.
Tax consequences are certainly one aspect I had failed to consider. Another aspect is that any executor of an estate will not repay an unenforceable loan since it deprives the heirs of their expected inheritance. If he or she does so because “it is the right thing to do”, any heir can sue the executor. I’ve seen these situations arise. I suspect either (1) preserving the loan against the statute of limitations, (2) establishing a valid claim should the building go into foreclosure or be sold, or (3) the tax issue, proving it was a loan as opposed to a gift. On the other hand, he could just be a bankrupt jerk. ;o)