How to keep a loan to family from turning into a problem:
My husband and I have saved close to $2 million. He is 58, and I am 59. Our son is a hardworking, bright young man awaiting responses to medical school applications. My husband wants to loan him $200,000 to $500,000 to reduce his debt from interest on loans. I want to help too, but I think $200,000 should be the limit.
I want a legal contract to determine when it will be paid back, how much interest we will charge, and so on. My concern is that we are unsure how to set this up and I don’t want a nice gesture to end up causing problems with our son down the road. My husband is still working and has a nominal pension from military retirement.The first rule of friends-and-family loans is to offer only what you can afford to lose.
The planner also can tell you what interest rate you’ll need to charge to avoid having to file gift tax returns with the IRS. Once you have that information, you and your husband can work together to determine the size of the loan and the interest rate. You can find promissory note templates online, or you can hire an attorney to draft the actual agreement.I paid off and closed two large home equity lines of credit in April, but these HELOCs still appear on my credit report.
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