Case study

At some time in your life, you may look to loan money to a family member or friend or alternatively you may seek a loan from family or friends. How should that loan be documented, if at all and how should that loan be treated in amongst the rest of life’s paper trail?

Here’s a case study that the HopgoodGanim team has faced before and evidence as to how important it is to document a loan. All names are fictional.

The challenge

Bill’s son Joe offered financial assistance to him as he was a pensioner and from time to time struggled to meet his mortgage repayments along with living expenses.

Bill also has a second adult son called Paul. He has a good relationship with Joe but not with Paul and did not wish to make any provision for Paul in his Will.

Bill has a friend Erica and while their relationship may previously have been described as a de facto one, Bill was adamant that they were now only friends and housemates.

Nevertheless, Erica resided with Bill at his residence and Bill was concerned to give her the option of continuing to so reside in his residence if she survived him for a certain period of time and subject to certain conditions. The residence is subject to a mortgage.

The solution

To document the loan and to deliver a solution to Bill’s living arrangements, the team at HopgoodGanim suggested the following solution:

1. A loan by Joe to Bill of monies sufficient to discharge the existing mortgage debt over Bill’s residence.
2. A new mortgage from Bill to Joe over the title to the residence so as to secure the loan.
3. An update to Bill’s Will to include provisions relating to Erica’s right to reside.
4. In anticipation of claims being made against Bill’s estate, we suggested Bill make separate Statutory Declarations in conjunction with his Will setting out a number of his reasons for what he had done.

The outcome

Bill gave us instructions to undertake all four parts of the solution we delivered.

Apart from the provisions to Erica’s right to reside, Bill left the rest of his estate to Joe.

Bill can now be confident that Erica will have somewhere to reside should she survive him and confident that he has put in place measures to protect his estate from any claims by each of Paul and Erica.

As you can see by this case study, a loan may have many competing elements to it which requires a holistic solution. HopgoodGanim Lawyers can provide this solution with estate planning and finance experts.