La Cible

Aout 2020

La Cible, magazine officiel de l’IQPF, est destinée aux planificateurs financiers et leur permet d’obtenir des unités de formation continue (UFC). Chaque numéro aborde une étude de cas touchant les différents domaines de la planification financière.

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Page 22 of 23

23 Collateral If the amount of the loan is high and the child/ borrower has assets that could be used as collateral for the parent/lender, the parent could consider taking a mortgage on the child's asset: a chattel mortgage for personal property or a real estate mortgage for immovable property. In this case, if the property is already being held as collateral, the parent/lender will have a second mortgage. Having collateral may reduce the risk of loss if the child/ borrower does not keep up their obligations under the loan. Death or Incapacity of the Borrower If the child/borrower were to die, the debt would be included in their liabilities. It is important to take this into consideration. Would the child/borrower's financial situation allow for the repayment of the remaining balance at the time of their death? The heirs of the child/borrower may become responsible for the debt if the estate is insolvent and the heirs do not comply with all the steps set out in the Civil Code of Québec for the settlement of the estate. Furthermore, the parent/lender may never recover the debt if the estate is insolvent. Therefore, before granting a loan, the parent/lender should discuss these issues with the child in order to manage the risks and uncertainties the death may create. If the child/borrower becomes incapacitated, the obligations related to the loan must still be fulfilled. In this respect, before granting the loan, the parent and child should discuss this risk and assess the child's capacity to pay if they were to become incapacitated. Death or Incapacity of the Lender It is also important to add provisions about the loan to the lender's will. If the parent/lender wants the loan balance to be extinguished on their death, they could consider a debt cancellation clause for the child/borrower. But if the parent/lender wants the child/borrower to repay the balance of the loan – because they want to be fair toward other children, for example, and the borrower is also an heir – the liquidator of the estate could reduce the child/ borrower's share of the total estate (including the debt owed to the parent) by the amount required to repay the loan. If the parent/lender were to become incapacitated, the mandatary to the property will have to continue to collect the payments and ensure that the obligations related to the debt are fulfilled by the child/borrower. For both these situations, it is strongly recommended that a copy of the loan agreement be attached to the will and the protection mandate. FEATURE ARTICLE

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