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    toni_1234's Avatar
    toni_1234 Posts: 3, Reputation: 1
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    #1

    Jul 15, 2010, 10:27 PM
    Deceased mother took a motgage on her house to lend her business money does it need t
    My deceased mother took a mortgage on her house to lend money to her business. The mortgage payment s were made through the business and the current accountant tells us the estate needs to pay the mortgage because it looks personal. Can this loan be reclassified?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jul 18, 2010, 05:31 AM

    Why is this in homework?

    Technically, the business owes your mother money, and your mother owes the mortgage. So in the books the company should have been recording those payments as payment back to your mother, even though it skipped over her to go to the bank. This isn't uncommon in small closely-held company situations.

    So yes, the estate has to pay the mortgage. The fact that she used the money to lend to the business is not relevant. If you had borrowed money and then used some to lend to your friend and are using the payments from him to pay your loan, isn't the loan still yours? Your friend isn't related to it, nor would the bank consider that your friend owes your debt.

    Now... one question I would have is if your mom actually loaned the business this money. Versus, she used the money in her own business and those are just withdrawals out of the company - that's a different thing. If she owns the business, then the business is part of the estate, n'est pas?
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    toni_1234 Posts: 3, Reputation: 1
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    #3

    Jul 18, 2010, 11:33 AM

    The mortgage was a loan to the business which my mother owned. It was used to pay and refinance a business loan the business had at the time. The business was and is part of the estate.
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    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Jul 21, 2010, 07:18 PM

    Something about that doesn't sound right. But you're really more getting into a legality here, rather than an accounting issue. Since the business was hers and is part of the estate, from a legal standpoint I have to assume it's not really going to matter who technically pays the loans. The net value of the business is hers (from an accounting standpoint as well) and is part of her total value. The loan is going to need paid and it's going to reduce her total value no matter who pays it.

    I'm not sure why there's a need to "reclassify" it. But if you really want to do something, I would suggest asking on a legal forum. Dealing with estates is more a specialty area, and it's not really an accounting one but a legal one.
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    morgaine300 Posts: 6,561, Reputation: 276
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    #5

    Jul 21, 2010, 07:19 PM

    Oh and by the way, my condolences for your loss. I've lost both my parents, and having to deal with an estate when you're busy grieving isn't a whole lot of fun.
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    toni_1234 Posts: 3, Reputation: 1
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    #6

    Jul 27, 2010, 07:48 PM
    Quote Originally Posted by morgaine300 View Post
    Oh and by the way, my condolences for your loss. I've lost both my parents, and having to deal with an estate when you're busy grieving isn't a whole lot of fun.
    One more note... The previous accountant booked the mortgage as a Loan to Officer(supposedly for tax purposes)The current account tells us this complicates the mortgage and that's why the estate needs to pay it. Like you replied,both the house and the business are entirely in the estate.
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