Estate Pitfalls & Family Loans
There are many issues that can crop up and create family discord when an estate is being administered. A commonly occurring problem is that of outstanding loans to beneficiaries. Many parents who have lent money to their children wish to write wills that take loans into consideration when dividing assets. However, any added complexity can lead to family drama and estate litigation, so it is important to work with a lawyer on drafting this correctly. Here are a few tips on making it work.
People can account for loans in their wills using a “Hotchpot Clause”. This requires all assets to be tallied up before division, then, executors calculate each person’s share of the total while deducting loans.
It seems simple enough, but conflict can often arise regarding loan amounts and repayments. Documentation is important. All loans to children should come with written contracts. In addition, parents should keep a clear and accessible repayment ledger that the child and the executor are able to access and understand. Sharing this repayment information with all the children will help avoid conflict and estate litigation later on.
When drafting loan documents, there are multiple factors to consider. For example, are the children’s spouses co-signers on the loans or are they just to the child? If the estate planner is married, is the money owed to both the estate planner and his or her spouse or is it just between two individuals? Clarifying all this early on and combining it with other necessary documents can help an executor immensely. British Columbia families seeking advice related to estate planning and estate litigation should contact a lawyer experienced in these matters.