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What to consider before lending money to family and friends
When your best friend views your
nest egg as a source of start-up funds for his latest business venture, or your
nephew hits you up for a car loan, your first impulse may be to reach into your
bank account to help. But it's a fact that loans to family and friends often
end up straining both finances and relationships. As Shakespeare said,
"Loan oft loses both itself and friend." In other words, if you lend
money to friends, you often don't get paid back, and the friendship itself may
disintegrate.
It's best to consider a loan to
someone you love as an "arm's length" transaction. If you're
pondering such a loan, keep the following in mind:
* You can just say "no."
It's your money, after all. Do you really want to raid an emergency fund or dip
into your child's college account to finance a friend's business idea? Think
like a bank. It's reasonable to ask tough questions about the person's bank
accounts, potential sources of income, planned use of loan proceeds, and
spending habits before extending credit.
* Consider a gift. If you're
comfortable sharing your resources, you may want to provide a monetary gift
with no strings attached. In many cases, this is the best solution because
neither you nor your friend expect the money to be paid back. Unlike a loan, this
type of arrangement can forestall misunderstandings and hurt feelings later on.
Of course, you should not give money if doing so would unduly strain your own
finances.
* Formalize loans. If you decide to
lend more than a small amount to a friend or family member, it's generally best
to draft a written agreement. This can be as simple as filling out a promissory
note (available online or at office supply stores). Such forms spell out the
basic terms of the loan -- amount, interest rate, payback period -- and provide
some limited protection should you and the borrower end up in small claims
court. Another recent innovation is the use of direct lending (also called
social lending or peer-to-peer lending) websites to facilitate loans between
family and friends. For a fee, such sites can prepare loan documentation, send
payment reminders, issue regular reports, even facilitate electronic fund
transfers. If the loan involves a significant amount of money, check with your
attorney.
Remember: Many personal relationships
have been damaged when loans go awry. So proceed with caution.
Posted in tax
Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can't remember, you're not alone. But it's worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they'll receive. Here are some key facts about beneficiary designations.
What are they?
When you designate a beneficiary for an account, you are naming the person you want to inherit that account.
Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.
You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.
Why are they important?
It's important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won't change the beneficiaries.
There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.
How do you update them?
First, find copies of all your current designations. Contact your insurance company and plan trustees if you can't locate the documents.
Review them and decide what changes you'd like to make. Make an appointment to go over the changes with your tax or estate planning advisor.
Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.
Last Updated by Admin on 2015-01-15 10:32:45 AM