It’s not uncommon for parents to lend their children large sums of money, particularly when their children are pursuing milestones such as purchasing their first home, or working on post-secondary education. Whether or not the lending parents intend to collect on those loans varies from case to case. When a parent dies before a loan is paid back, it does not mean that loans between the parent and their child or children are automatically forgiven. In some more confusing situations, such as one heard before the Court of Appeal for Ontario, conflicting evidence makes things even more confusing.

One loan, two notes

The deceased passed away on June 5, 2015. The trustee of the estate was provided with a will and promissory note dated July 16, 2014. The note concerned a loan of $142,000 that the deceased made to her daughter, the appellant. The note, which was signed, stated that the loan was to be paid back.

However, the appellant provided the estate trustee with a second promissory note, this one dated nearly a week later on July 22, 2014. The appellant said the note was found at the deceased’s condominium and stated the loan would be forgiven when the appellant’s mother died. It specifically stated the loan would be “cleared upon (her) death.” The appellant told the court during the original 2018 hearing that it reflected the true intention of her mother.

During the original trial the appellant told the court that the purpose of the loan was to assist in her purchasing of her former spouse’s share of a cottage they owned together. The appellant thought it was a gift, but learned otherwise when her mother produced a promissory note including repayment terms.

The appellant then said that she discussed the loan with her mother, who later determined it would be forgiven upon her death and that a note stating as much was sent to the deceased’s lawyer who was to put in her will. However, that didn’t happen. The appellant said her mother was scared about how another of her children might react to the large gift.

The estate trustee relied on the lawyer’s testimony that while the second note was provided to him, he was instructed to leave it out of the will.

The trial judge concluded that the first note, requiring repayment of the loan, was valid and enforceable.

Were the intentions of the deceased taken into account?

The appellant argued the trial judge erred in rejecting the second promissory note. The appellant said that a witness who was present for the signing of the second note (as well as the first) should have been enough to prove that her mother’s intentions were for the loan to be forgiven. Unfortunately, though, the second note was not delivered to the lawyer who held the will. Instead, the first note was delivered. The court also agreed with the trial judge’s finding that the true intentions of the deceased are evident in the note she chose to include with her will, and that the existence of the other note, which was not included, does not override that conclusion.

Contact the experienced estate litigation lawyers at Derfel Estates Law if you are involved in an estate dispute. We work tirelessly to achieve the best possible resolution to our client’s will, estate, power of attorney, or trusts disputes. We can be reached at 416-847-3580 or online.