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An Inheritance Plan for a Loan




"If parents gave a loan to someone before their death, can children get loan repayment?" I have received many questions like this. The answer is "it depends on the situation."


If the parents wrote a promissory note and adequately filed a lien when giving the loan to the debtor, there would be a way for the children to receive repayment since the debtor must remove the lien from their properties before they dispose of them.

However, this is a unique situation. It is challenging to get repayment because of various conditions, like writing promissory notes with poor handwriting while not accurately stating the debtor's full name.


For instance, a promissory note states, "I gave a $10,000 loan to Deacon Kim, signed only by the lender. In this case, the promissory note has too many unknown factors—like, "Who is Deacon Kim?" "When was the loan given?" "How will the principal amount and interests be repaid?" "Did Deacon Kim receive the loan in cash or by check?" "What is this loan for?"


Therefore, when writing a promissory note, you should write it thoroughly so that the third party can objectively understand the terms and conditions between the lender and the debtor. The debtor's identification, the proof of giving a loan, the period for repayment, interest rates, the repayment plan for the principal amount, and other critical information should be clearly stated.


Remember that even when a promissory note is wholly written with detailed terms and information, it may not be enough to get loan repayment. When the debtor does not repay the loan, you cannot seize the debtor's properties only with the promissory note. After many legal procedures and the court's judgment that the debtor must repay the loan through a lawsuit, you can have a right to seize the debtor's properties.


Many conditions and factors can influence the court's decision to seize the debtors' properties, and depending on the judge's capacity, we never know whether the court will approve it. Furthermore, the lawsuit can take a long time. So, if the debtor disposes of his properties before and after the lawsuit, it is more challenging to get repayment. Therefore, when you give a loan, you should consider it thoroughly and provide it with caution.


Also, considering that you may not receive full repayment while alive, it is good to state your living trust as the lender on your promissory note. If you die, then your children can have a right to receive the repayment through the living trust. Accordingly, when you lend a significant amount of money, I encourage you to file related documents with a professional lawyer and fully understand what legal action you can take when the debtor refuses to repay the loan before deciding to lend money.


When I worked at a probate court, the children of the deceased sometimes brought a bunch of promissory notes from a hidden safe created by the parents, and the promissory notes, written in the past and recent days, are all mixed up. Unfortunately, in this case, most of them do not have any legal effect. This is because the statute of limitations on violating the documented contract is only four years. It is hard to imagine that the debtor who does not repay it directly to the lender will pay it back to the lender's children. On the other hand, if the deceased took a loan and died without repaying it within one year of the death, the lender should file estate litigation about the deceased's estate.


Estate litigation will allow the lender to receive repayment within the extent of the deceased's estate.


Therefore, if the deceased's estate is less than the loan amount, it is challenging to get repayment. I emphasize it here again; I encourage you to file a lien in the name of your living trust, even if you wrote a promissory note that states your living trust as the loan giver.

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