Forgiving loans to your children is something that some people consider when creating an estate plan. Doing so, may be one of the best things you do for your heirs. But, if not done with a balance of delicateness and firmness, you may create conflict among your children.
Some of your children adjusted to adulthood, responsibly and financially and needed no financial help. Others may have needed more time but were on their way thanks to money you lent them for school, purchasing a home or starting a business. However, others were simply ne’er-do-wells who let money sift from their hands, but you loved them anyway.
Have your decision in writing
Here are some of the key things to do when choosing to forgive an intrafamily loan:
- Have the estate planning talk with them: Include in this conversation your intentions to forgive the loans to certain family members and explain your decision. In performing this task, you will ensure that no startling surprises arise for your heirs.
- Make sure to have your plans in writing: Your intentions should be part of the estate planning record. Doing so verbally can lead to unclarity and dissent.
- Understand any potential tax consequences: Before forgiving an intrafamily loan, comprehend any tax consequences that you or your borrowing child may face. However, typically, when you forgive such a loan, it is considered a gift. In such cases, generally there are no tax issues for either of you.
Peace of mind is one outcome you can achieve by forgiving loans to family members. That peace of mind spreads around, too.
Creating a delicate balance
Forgiving loans to family members can represent an effective part of estate planning. But before you choose to do so, carefully consider the potential ramifications. You must balance a few things to avoid any pitfalls that may lead to jealousy, cries of unfairness and relationship problems among your children.