Elyse Foster, CFP® of Harbor Wealth Management recently spoke with journalist Tammy LaGorce about the complexities of lending money to family for The New York Times.
The rules for how much to lend and when, if ever, to expect repayment are being written in real time, like so much of life during the pandemic. “Twenty percent of people will call and say, ‘Can I afford to do this?’” Ms. Foster said. “But the other 80 percent are very determined and have already committed to making a loan. So we’re immediately thrown into ‘Where are you in the process, and how is the loan going to be paid back?’”
Relatives “should make it known what they gave, and the effect on them of what they gave,” Ms. Foster said. “Let’s say I have six to nine months of emergency reserve money. If I gave you three months of it, I could tell you: ‘This is what I saved, and this is why I need it back. I could be in trouble without it.’ That way the recipient understands this isn’t funny money.”
Before you make the loan, think about what your intent is,” she said. “Is it a gift, or is it a loan?” If it’s a loan, she advises writing a formal note about the terms and filing it with a third party. “And then let it go. Don’t bring it up at holiday dinners. Don’t give reminders. If you can’t do that, we suggest you not make the loan at all.”
See the full NYTimes article published June 24, 2020.