5 Rules of Lending Money to a Family Member

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.

Timothy Burke of Nationalfamilymortgage.com deals directly with family members seeking assistance managing the inter-family loan process and offers these 5 tips.

  1. 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
  2. Set a proper interest rate. Another IRS requirement for it to meet the requirements of a loan, and not a gift
  3. Lend for the right reasons. Ensure the loan is something you believe in
  4. Agree upon a payment plan AND put this in the loan documents. Details matter and can be referred to when there is a dispute
  5. Involve an unbiased third party. It’s the cleanest way to enforce a contract when there is a dispute

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