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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
Estate planning is not just a task for the wealthy. Even though federal tax implications kick in only if your estate exceeds $5,430,000, there are other issues that make estate planning important for most individuals.
Start your estate planning by meeting with an attorney and your accountant. They can instruct you in the essentials of estate tax law and the requirements for establishing an estate plan. A key part of estate planning is compiling the documents that will accomplish your goals.
A basic estate plan should include the following documents:
Your will, which should name the guardian you choose for your minor children and an executor (personal representative) to carry out your instructions.
A listing of your assets. Include your home and other properties, pension and retirement accounts (401(k) & IRAs), investments (noting the cost basis), automobiles, jewelry, and any other assets.
Life insurance information such as your insurer, your policy number, the amount of insurance, and the location of your policies.
Financial and business records, including real estate deeds, tax returns and related support papers, your social security number, investment statements, and stock and bond certificates.
Funeral instructions, including your burial wishes and people to be notified upon your death.
Medical information and a list of your doctors.
Durable power of attorney, designating the individual(s) you select to act on your behalf if you're incapacitated.
Health care proxy naming the individual(s) you want to make health care decisions for you if you aren't capable.
Keep your original documents in a fireproof safe or with your attorney. Put your list of documents and the copies in a binder at home and tell your executor where the documents are located. If you would like assistance with your estate planning, please contact our office.
Last Updated by Admin on 2015-05-28 11:17:56 AM