Loaning money to family – to do it or not to do it? That is the question.
Each family views money differently, and when the need for financial assistance arises, there are many ways of approaching it. Often, parents who are also seniors are put in the tough position of an adult child asking for a loan, perhaps for college tuition, a down payment on a home, to start a business or to help pay expenses. A parent’s natural instinct is to help a child, even if that child is an adult. Seniors have to be especially careful about lending money because many are on limited income. If the senior takes the loan out of savings and the loan is not repaid, the senior is not able to recoup savings as easily as someone who is still in their working years. If the senior should need the money for health reasons, long-term living expenses or unexpected occurrences, and the money is not there, how will that senior survive?
Money and family are a precarious combination. The risk of loaning money to family is that relationships may be compromised because of the situation – if the details of the arrangement are unclear or if the borrower neglects to pay the lender all together. The lender may feel taken advantage of, while the borrower feels entitled.
Careful consideration when lending money
A parent should thoroughly consider giving money to an adult child. Enlisting an attorney or an accountant may be necessary to assure proper structuring of the loan and payments. The Internal Revenue Service (IRS) may also be curious as to the nature of the arrangement, another reason to have a professional help set up the loan.
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Blog posting provided by Society of Certified Senior Advisors
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