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Transfers Between Loved Ones


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Is it a gift or a loan? Different requirements and issues are raised depending on how this question is answered.

If it’s a gift . . .

Most gifts do not require paperwork or IRS Forms to be filled out. In fact, presently individuals can gift up to $15,000 per recipient per year without paying any gift taxes, and married couples can combine their gifts and give up to $30,000 per recipient per year. Any amount over that $15,000 means the individual would have to file a gift tax return or use part of their “lifetime exemption” to have no taxes owed.

Gifts of large amounts of money can sometimes raise misunderstandings in families. Communicating with loved ones may help alleviate some tensions though, by informing other family members of the gift and the reasoning behind it.

If it’s a loan . . .

Consider getting the terms of the loan – the amount, loan length, if there is any interest that will accrue- in writing and signed by both parties. This ensures everyone is on the same page and protects the lender if the borrower were to run into subsequent financial problems by allowing the lender to join any other creditors and recover some of the money owed. Documenting the terms of the loan can also help prevent disputes among family members. The documentation would show who received how much, when, and if it was paid back so there is no question as to what loans are still outstanding.

Unpaid loans should also be included in estate plans, so if there were any remaining financial obligations at death, distributions could be adjusted accordingly. Promised unfulfilled support may be given or amounts owed could be deducted from the borrower’s portion of the estate.