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Estate and Elder Law

Self-Cancelling Installment Note

The self-cancelling installment note (SCIN) is an installment sale with a unique feature to it: the note and any remaining balance is cancelled upon the death of the seller. In other words, the SCIN takes an installment sale with all its attendant benefits and attributes and then adds a potentially beneficial twist for freezing an estate.
 
Sample SCIN
 
I, Mary Smith, of 5542 N. Berkeley, City of Milwaukee, County of Milwaukee, State of WI, hereinafter known as borrower, promise to pay John Jones, hereinafter known as lender, five hundred thousand dollars ($500,000) together with simple interest on the unpaid principal balance at the rate of eight percent (8%) per annum.
 
1.0 Maturity. This note matures on the tenth (10th) anniversary of the signing of this document. The schedule of payments shall be as follows:

Date
Principal
Interest
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10

This schedule shall remain in effect unless any prepayments of principal are made. If such payments are made, a supplemental schedule shall be attached to this document.
 
1.1 Consideration. In exchange for the sale of___________________, the parties stipulate that the cancellation provision contained herein is a part of the consideration and bargained for exchange for the sale.
 
1.2 Cancellation. Notwithstanding the amortization schedule, this note and any underlying obligation to pay shall be cancelled and terminated as if paid in full upon the lender's death. No cancellation shall be permitted for any overdue or late payments due and outstanding at the time of the lender's death.
 
1.3 Payments. Payments are intended to be contingent. The payment schedule and purchase price is variable and shall be somewhere between $0 and $_____depending on how long the seller lives. A condition precedent to each contingent payment is that the seller be alive on the scheduled potential payment date. Payments are to be made on the 15th of the month of January. Consequently, if the seller dies before said date, the obligation to make such a payment does not arise. Payments are to be made directly to the lender at the address provided herein, or at any other place designated in writing by the lender.
 
1.4 Prepayments. Prepayments may be made at any time, without penalty.
 
1.5 Security. This note is secured by a [___________________] and described in Schedule A attached hereto.
 
1.6 Default. Default shall occur if at any time payment is not made within thirty (30) days of the due date. Upon default, Lender may foreclose upon the property described in Schedule A, or may take such other legal remedy as deemed necessary and appropriate to collect the default.
 
1.7 Cancellation. Upon payment of all the principal and interest required, the lender or his representative shall mark this note ''Cancelled/Paid In Full.''
 
1.8 This note and the parties' respective rights and liabilities shall be construed under the laws of the State of Wisconsin.

Dated:
Mary Smith, Borrower
Notary

If you have a subscription to lexis.com, you can access Planning for Large Estates § 4.12, the publication from which this form was taken, for an analysis of the issue and practice tips. You can also purchase the publication at the Lexis Store.

 
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