Family or friendly loan?

It is quite common to lend money with family or friends. But beware! To avoid misunderstandings, some precautions are necessary.

Financial assistance between members of the same family or between friends is clearly less restrictive than a formal loan contract signed at your bank. And yet, the operation deserves a certain formalism, especially if the amounts involved are significant.


A written act

A written act

The writing of a writing is a guarantee for the one who lends the money. You can write a loan contract signed by both parties, or an IOU signed with the borrower’s hand. But whatever the writing chosen, it must specify that it is a repayable loan, and indicate its amount, its duration, its repayment terms (in one or more installments), the repayment date, the interest rate if there is one. A family loan can very well be made at zero rate. If the lender receives interest, it must report it as taxable income.

In theory, when the loan exceeds 760 dollars, the borrower is obliged to declare it to the taxman by means of a form n ° 2062 to be provided at the same time as his income statement.

The acknowledgment of debts must always include the amount in figures and letters written by the hand of the borrower. If the loan is large, it is a good idea to register the loan deed in order to establish without question the date on which it was drawn up – make the “certain date” in the jargon of lawyers – with the office of the registration ( a tax department) upon payment of a fee, known as a fixed fee of 125 dollars. Registration makes it possible to prove in the event of a tax audit that this is a real loan. Otherwise, the taxman can tax it as an undeclared donation or as income of undetermined origin. As a result, there is a risk of recovery.

Finally, when the loan relates to a high amount (to finance the purchase of a home, create a business, etc.), it is better to ask a notary to draw up the loan deed.


Turn a loan into a donation

friend loan

Drawing up a contract or an acknowledgment of debt also helps avoid family quarrels, especially if the loan was granted to one child, and the others received nothing. What often happens: we first lend to a first child who wants to buy his first apartment, for example, while the second is still studying, for example. In this case, be aware that it is always possible to make a shared donation in favor of all children at a later date by transforming this loan into a donation, in order to restore equality between heirs.