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Q: My brother-in-law has asked for a loan. He lost his job and supports a wife (my sister) and two kids. What should I do? — Conflicted


A: Dear Conflicted,

Lending money to relatives and friends can be a minefield. Most folks will say it’s not a good idea. Even if it’s a small amount, it’s likely to create tension – spoken and unspoken. Relationship dynamics may change forever – and for the worse. Even if you can afford to make the loan – you may experience a crisis and need that money yourself. Then what?

Also, statistically, most ‘loans’ to family members and friends do not get paid back. Typically these are open-ended loans with no real payback schedule or interest.

If you are in a financial position to afford to make the loan, you may want to consider these suggestions:

  • Talk with your spouse and agree that you are both willing to do it.

  • Create a promissory note with a re-payment deadline and interest (which makes it formal). Then have it notarized.

  • Use something as collateral for the loan.

  • Brainstorm options for a promissory note. Example: if the loan is to a relative who is a beneficiary in your estate plan, write an amendment that deducts the loan from the inheritance if not paid back.

  • If the amount is high, offer to loan a small monthly amount rather than a lump sum — especially if it is to help with household expenses.

  • Do not use retirement funds.

What if you die before the loan is paid back? Will your estate be paid?

In the final analysis, be prepared to think of a ‘loan’ as a ‘gift’ and assume it will not be paid back. Also chat with your accountant and attorney if you face this situation.