CHAPTER 17 Don’t Make a Child Who Owes You Money a Debtor to Your Other Children Or, An Unforgiven and Unpaid Loan to a Child Can Wreak Havoc after Your Death

If you are like most of my clients, you have lent—or you will lend—money to one of your children. After all, it is very nice to help your children financially when they need money to better their lives by going to school, starting a new business, or buying a home. I speak from experience, because if my parents had not lent me money for law school, you would not have the pleasure of having me as your Living Trust advisor.

In most cases, however, a loan to a child becomes a gift to that child. Deep down, you know this. Why do you know this? Because every time you raise the subject of repayment with your debtor child, you receive a convenient excuse why he or she cannot come up with any money.

  • “I had a bad month at the office.”
  • “The kids’ orthodontist bills came in.”
  • “We needed to go on vacation.” (“Needed”?)
  • “I will have it for sure next month.”
  • “If I pay you, I won’t have enough left to buy groceries, and I don’t think you want your grandchildren to starve.”

Then again, your debtor child might be the kind of person who has no problem telling you how it really is. I will never forget one family inheritance meeting with my clients and their three sons. My clients had lent $25,000 to one of their sons to help him dig out of a financial hole he had created. They had their son sign a promissory note that evidenced his promise ...

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