This article about children failing to repay loans made to them by their patents caught my eye since I see this happen a lot in my practice. Parents try to help a child who may be in a jam financially with the expectation that the child will do the right thing and repay them in the not too distant future. Sounds all well and good in theory, but it usually never works out that way.
The fundamental problem in these cases is that there was never a real “meeting of the minds” as to the nature of the transaction and how or whether the money was to be paid back. There is usually some general talk that the money is needed to cover a particular event or expenditure, but nothing is really established about when the money is to be repaid, how it is to be paid (monthly, quarterly, as a lump sum??), the interest rate, if any, or whether it was intended as a gift. Along with that is the complete lack of any documentation covering any of this.
If there is nothing in writing outlining the intentions of the parties, in most cases it will be very difficult to prove it was intended as a loan rather than a gift, especially among family members. In New Jersey, as in most states, there is something called the “Statute of Frauds” that requires certain transactions (loans over a certain amount, prenuptial agreements, contracts to buy and sell real estate and others) be in writing in order to be enforceable.
So, what do you do when your kid becomes a deadbeat and you need the money? Unfortunately, there is not much you can do, other than lay on them some good old fashion parental guilt! That sometimes works. Or remind them of how terrible life will be for them one day when you are gone, and they have to live with your voice haunting and reminding them from the heavens about how poorly they treated you!
In all seriously, aside from the legal limitations, it just may be the case your child simply does not have the money to pay you back. Other stuff happens, more bills accrue, and the end result is your “loan,” such as it is, takes a back seat.
If you have more than one child, another way of approaching this situation (after the fact) is to change your will to make sure it states that the money you gave this one child is taken out of his or her share when you pass. That is certainly reasonable and should not come as a surprise to your child. Of course, it will be up to your executor to do the calculations and become the “bad guy” so to speak, which is why you want to appoint an executor who will stand up to any push-back from your children. In the end, you want to be fair to all your children, even if your children were not as forthright as you might have liked them to have been.
Moral of the Story: Your children are well intentioned and good human beings, but sometimes the devil makes them do weird things.
Life's Little Lesson: Don't “lend” your children money unless you can survive financially without ever seeing a penny of it again.