Q. I am retired and my adult child is borrowing money from me. There is nothing in writing and I am worried about getting paid back. I also want to be fair to my other children when I die. How do I handle these issues?
A. This is a common problem in a sluggish economy that is forcing adult children to turn to their aging parents for financial assistance.
A written promissory note should always be used when loaning money to a family member, including a child. While it may seem impersonal and cause some tension, it imposes legal responsibility and, in some cases, dealing with personal responsibility is exactly what the child needs. This also makes sense because an aging parent has taken care of the kids. It’s time to worry about oneself. An aging parent has a retirement and increasing healthcare needs to finance. Children who are forced to borrow money are certainly in no position to help. In this context the promissory note itself becomes very important for an older person to preserve financial security.
Many people recite a loan to an heir in their trust or will and attempt to deduct it from the child’s share. While this is one approach, the promissory note approach is a better foundation for imposing fairness. It can be enforced after death to continue payments to the estate which can then distribute the proceeds accordingly.
Sometimes an older parent will want to provide a loan to a child to help with a first home purchase. In situations where real estate is concerned it is also important to secure a loan with a lien, especially for protection in the event the child divorces a spouse or other financial issues come into play regarding that child and their ability to continue to own the purchased home. This will provide the older parent with necessary security if things go awry.
It is highly advisable to consult an elder law and estate planning attorney when considering a loan to a family member to avoid these pitfalls. Arizona Mobile Attorneys is ready to provide solutions to these problems.
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