Loan from a family member... any advise?

Loans from family can work, but the proper dynamic and communication need to be there. My parents are not wealthy, but due to careful planning they are able to live out their retirement as they see fit.

They loaned me money for school because when I was looking the rates were ridiculous. It was/is mutually beneficial, I saved a bunch on interest and they let their money work a little for them. It was also nice (but thankfully not an issue) to know if times were tough I could put payments on the back burner with no hassle.

They've also loaned my sister and her husband some money to purchase his late grandmother's house, which is now a rental income property. Mutual benefit there as well, but again communication and honesty is key.

To my knowledge the tax implications of this have been covered already.

 

Brother, I wish you the best of luck on all of this. But be careful or you will end up here:

 

I appreciate all the comments and especially the well wishes. I think I got it covered.

 

Some people just enjoy drama and insist and preach that it is always a bad idea.

Nothing is always anything. Reality is not one size fits all. Common sense needs to apply in these situations. That’s why I said it depends on the family dynamics.

 

Bumping to say that I’ve borrowed money from family twice and both times went fine. Only you know your relationship with your family member and if it’s going to be ok.

In my case, both times were from my older brother to purchase homes. The first was back in 2010 and I borrowed the same amount that I was going to get back in the First Homebuyers Tax Credit. I “borrowed” the money and then gave it back after I filed taxes half a year later. The second time was a couple years ago, and I’m still paying him back. We set up an amortization schedule and I’m paying him interest. This was to purchase my second home (I retained the home I bought in 2010 as a rental).

The trick is, you can’t borrow money for a downpayment. So he didn’t actually “lend” me money. It was a gift that I’m in no way legally obligated to pay back. He had to do a letter stating that the funds were a gift.

That being said, of course I’m paying him back, plus interest. It’s just mutually beneficial - I get the downpayment and he gets much better interest than he would have if the money was sitting in the bank.

 

The problem is you don’t know what the dynamics are until the situation comes up.

You don’t know what you will do in a situation until you are in it.

Death and divorce bring out the worst in people. Years of unresolved issues and resentments will boil over in these times of pretty serious emotional stress and grief.

And that’s the fundamental mistake most people make with estate planning. They assume everyone is going to be thinking clearly and logically when the time comes and in a divorce or following the loss of a loved one that’s just an unrealistic expectation.

I’ve seen families ripped apart in our office, law enforcement has had to be called for fights or threats, and I’ve seen very educated and mature clients resort to criminal fraud in order to circumvent the instructions within the estate documents. All of these people would have told you the day before the death of their parent they would all handle estate matters just fine.

You have no idea what will happen until that moment comes. So its best not to leave room to create problems moving forward.

And the second biggest mistake people make with estate plans. They don’t distribute things “fairly” and none of the family knows it until the will is read. Please everyone here needs to have a will and your heirs need to know whats in it prior to your death. If you are cutting a kid out entirely please don’t leave that a mess for the rest of your family to deal with.

 

My sister and I argued constantly when breaking up my deceased parents house and contents. "I don't need another dining room set, you take it!". "No, I don't want the table saw, I've already got one" and so on and so on.

 

Again, to read some of these posts, you would think every family was a Roman dynasty with brothers and sisters hiding behind every nook and corner with knife in hand ready to knock each other off for a few pieces of gold. Yes many are that way, I’ve seen them. But many are the not and will be just fine. I’ve seen those too.

No you can’t always tell what will people will do and other times you can . Not everyone is willing to cut a family members throat for money. Some actually love each other and value their relationships more than possessions.

Have things gotten so fucked up in the world that people don’t know this?

 

I can’t wait to argue with my siblings on who gets to keep moms vast collection of early 90s Tupperware containers

 

I will go to the mattresses fighting my sister for my mom's decorative Hummel plate collection.

 

It sounds like you don’t regularly deal with estates or other legal matters and aren’t appreciating how complex the process can be.

This isn’t fighting over a table saw or tupperware.

You have NO idea what your life is going to look like from this moment forward so you have no idea what you will or will not feel at that table when a loved ones will is read out.

Again I don’t think you appreciate what happens in the real world with some of these estates and the execution of them. You just think if anyone fights they’re being petty and dramatic. Not the case. In fact I’ve seen myself get resentful in family situations when I have a person very dear to me pass and I think family isn’t acting appropriately. Again you aren’t level headed with serious emotional loss and grief.

Some families have more at stake than tupperware and table saws.

And in a lot of cases it’s not about the money. Its about the principle of certain things. You can’t control what other people will or won’t do so you can’t say you’ll maintain your cool.

 

You have no idea what I have or haven’t dealt with but, Ok...

 

Here's what is happening so that we may complete the archives:

• I borrowed some money from my mom to pay my soon to be ex (STBE) the equity in the house after I refinance.
• My mom is cool with slowly paying off the loan and had me sign something that my loan will come out of my inheritance if I don't pay it off by the time she passes
  • Only thing that might be a problem is that if I can't close out the estate as executer until the debt is repaid. I'll cross that bridge when I come to it.
  • My sister, the only other person on my mom's will, is on board and we've told her exactly what's going on
• As I mentioned, I'm refinancing my current mortgage. And because my credit is so good and to get a lower interest rate... I am getting some money back from the refinance without changing the loan length as of now (i.e. our original mortgage was 30 years.. we've been paying 5 years on that... my refinance is for 25 years) and my monthly P&I payments are going down.
  • The STBE is not getting as good deal and her P&I payment is going up appreciably from what we're paying now, and her taxes are more on the condo she's buying. I am paying her for our furniture (her half of what we said the value is), but because she stayed in the house a few months, she owes me half of the property tax for the 2nd half of 2019 for a few months... so the net is not that much on my end. I'm not sad about any of this.
  • Now I'm boat shopping (kidding)
    • am I kidding? The archives will never know.