These days, cash is king -- and some of us just don't have enough of it. If you need to borrow money from a family member to make it through until times are better, you're not alone. But, please, do everyone a favor and be formal about it. That means put the loan in writing, generating a payment schedule, and agreeing on an interest rate that's at least what the government has published (don't worry, it's really low right now). Here's a good overview.
Why is this an estate planning issue? Because if you die unexpectedly, a loan that's been properly handled is much easier for your family to understand and take account of. It's hard enough to sort out family finances when there's been a death, but when important financial transactions have been handled with a nod and a wink, extremely messy situations can result.
Here are the basics:
- For any loan over $10,000, make sure you're charging at least the applicable federal rate for the loan. You can find that rate on the IRS's website.
- Write down the terms of the loan in a promissory note. Here's a nifty one you can download instantly.
- Print out and follow a loan amortization schedule, so you know what the monthly payments will be. This free program will help you figure it out.
