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Loans to Family Members
Consider this factual situation. Parents wish to help one of their children with a loan for the building of a home. There are 4 adult children in the family Peter, Paul, Mary and Maria.
- Peter and his spouse of 5 years, Lucinda own a parcel of land on which they have commenced to build a home. The title search discloses a mortgage to a bank
- The parents have so far advanced about $52,600.00 and another $40,000 is expected to be advanced within a month as the building progresses.
- The other 3 children have been already financially assisted
- The parents are loaning a total of $150,000.00 for Peter's and Lucinda's building.
- A financial advisor has advised the parents to make a repayable loan without interest, but to have a capital appreciation clause in the loan agreement to save tax. The capital appreciation clause means that the parents are paid a capital sum at the end of the loan and no interest during the loan.
- The parents have each made a will by which each child is to benefit equally and in case of death any child before the parents, the grandchildren will take that deceased child's share.
- Peter and Lucinda paid $126,000.00 4 years ago for the land having borrowed $100,000.00 and the balance of the current mortgage is $30,000.00.
So what protection should you be thinking about now or even before the first instalment of the loan was paid? Click next page for more information
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