When money is needed, calling on parents is commonplace. The ” family credit “, avoids the expenses and the troublesome questions of a banker. This facility must be framed, so as not to risk having problems with other heirs or with the state, which risks confusing a loan between individuals with a disguised donation.
A family loan is very practical,
But is too often the subject of disputes between brothers and sisters student loan. Unlike banks, parents do not ask their children if they are solvent: as for a loan of honor, everything is played on trust and not on guarantees.
The family loan between brothers is also very common. Here, there is no particularly different approach to the “conventional” private lending contract, as the risk of disguised gifts is much lower.
To learn more, read our article on credit between individuals.
Article 23L of the General Tax Code, Appendix 4). This document is useful, if only to prove that it is a credit, not a donation!
The tax site offers a model for a loan contract between individuals, which can be viewed and completed online, then printed. There are 6 sections to the proposed contract template.
- Section I: we write the information about the person who writes the act, the contract: surname, first name, address. We can do it ourselves (borrower or lender), or ask someone else to do it (a friend, a lawyer or even a notary for example).
- Section II: the date of writing the contract.
- Section III: first and last names of the borrower (or debtor) and the lender (or creditor) and their addresses.
- Section IV: Specify the type of loan: expensive, free of charge or a debt recognition.
An expensive loan is a loan where you pay interest. Not very usual between a father and his son, but you never know!
A free loan, without interest, must be signed by the lender and the borrower. This is the most common loan agreement between people from the same family.
Debt recognition only needs the signature of the borrower.
- Section V: how much money is borrowed, how much is reimbursed, with what interest.
- Section VI: addition of any clauses.
The loan agreement thus obeys certain simple rules that must be respected. One can imagine that it is not acceptable to mention on a loan contract that the borrower will have to ” repay when he can “!
To know :
- On the expensive loan, the interest earned by the lender will have to be declared to taxes, just like any income. Simply fill out the cerfa 2062 form and send it to the tax office at the same time as the annual income tax return.
- As for other credits, the interest rate can not be higher than the usurious rate.
Interest-free loan contract template
In short, a simple acknowledgment of private debt is enough between the parent and his child. It is a paper signed by the child that the parent keeps, where is written:
- Who is willing (name, first name, address)
- Who borrows (name, first name, address)
- How much money is lent, as well as the accuracy: ” for free “. It must be written in numbers, but also in letters, as for a check.
- The repayment terms : for example, if it is a family loan with repayment “in fine” (to repay all at once) or if it is necessary to repay monthly.
- Date and signature
For large sums of money, and when there are other possible heirs of the lender (brothers and sisters for example), it is better to make an authentic deed at the notary rather than a private deed, even to consult a tax lawyer. It will be, if necessary, easier to prove that it was not a disguised donation when the time comes.
What happens in the event of credit fraud?
By declaring the family loan normally, the bank will take it into account, as it would take into account a zero interest loan. It’s less beneficial than a personal contribution, but it’s a lot less risky than making false statements.
If a parent really wants to help, without making a donation, he can, in addition to or instead of the family loan, be a surety. He makes a commitment to the bank to pay the monthly installment of the credit in the place of his child if this one had to fail. This is the ideal situation for parents with high incomes.
Credit to pay inheritance tax
An inherited claim is subject, like other property, to inheritance tax. Each heir thus has an equal share on this inherited claim. If the son borrower owed for example 150 000 euros to his father, and he has another brother who inherits, he will only owe 75 000 euros to his brother, half of his family credit. As with any inheritance, the brothers will have to pay death duties.
If, unfortunately, the borrower dies before the lender, the heirs of the borrower will have to repay the family credit if they do not give up the inheritance. Clearly, grandchildren will have to pay back their grandfather if they want to inherit their deceased father.
It may be that the family debt is known only to the creditor and the debtor, between the father and the son. The temptation to say nothing to other heirs for not having to repay the debt is then very strong. This is a concealment of succession. If discovered, the unscrupulous heir is guilty of an offense. Immediate consequence: he loses not only his rights on his share of family debt, as he will more likely to pay damages to other heirs.
The inheritance is a dangerous game, the heir having to repay all the debt he had with his lender parent to other heirs, losing his own rights. Not to mention of course a very likely family dispute.
Yes to family loan, as long as it is well supervised!
The family loan, for those who can, is a very good solution to do without banks, their interest rates, and especially to avoid their possible refusal. But we must not forget that banks do not give credit to everyone to protect themselves, but also to protect customers from themselves.
A child who would make a family loan that he could not repay exposes himself to problems that are sometimes much more serious than personal bankruptcy. In addition to having no more money, the son who borrowed from his father may get angry with his family, or trouble the parent lender who would now need the money.
Before resorting to a family loan, it is necessary to make his accounts, and to make sure, as for a conventional credit, of his solvency, of his capacity to repay it. Parents are always less demanding than a bank, and can probably “forgive” some unpaid additional monthly payments, but the taxman makes sure that this family loan is not considered a disguised donation, which would have dramatic consequences, with the payment of very substantial taxes.