We all have the one family member, whether it’s a child, sibling, or even a parent who has talked about the need to borrow money from someone in the family.
Lending money to someone inside the family can be a very delicate matter. Say no and you risk souring the relationship. Say yes, and you risk losing your money and souring a relationship. It’s the ultimate Catch-22.
- Document the loan. The IRS requires it and if you don’t the IRS could consider the loan a “gift” and set a gift tax
- Set a proper interest rate. Another IRS requirement for it to meet the requirements of a loan, and not a gift
- Lend for the right reasons. Ensure the loan is something you believe in
- Agree upon a payment plan AND put this in the loan documents. Details matter and can be referred to when there is a dispute
- Involve an unbiased third party. It’s the cleanest way to enforce a contract when there is a dispute