Do you consider yourself an expert on protecting your wealth from hackers or thieves? One thing you may not be considering is your own family members. Should you be concerned about protecting your wealth from family? Have you ever had one of your in-laws reach out to you about a great deal they are working on? A family member may also be in temporary financial difficulties. You may feel sorry for them and want to help.
Even loans to family members should have proper financial steps put in place. There should still be proper documentation of the loan. If you have plans to forgive the debt some day, documentation is still advisable for some of the following reasons.
You may want or need the money back someday
The individual may get divorced and you will want protection from having your money getting divided
between the parties.
The party may die and the loan is not included in their will.
There is no documentation completed on your estate and what you wish to happen to it.
The person you lent the money to may forget the amount and what the action plan was. If this
happens, you may be hesitant about approaching them about the debt. It could also create bad
For all of the above reasons, documentation and action plans should always be put in writing. If you plan to gift a portion each year, this can happen then happen the least amount of difficulty.
Proper financial steps still apply, even with loans to family members. For example, proper due diligence should still be completed. This financial deal should be treated as an arms length transaction. If it does not smell right, have the fortitude to walk away. Some due diligence steps are:
1. Obtain a copy of their business plan
2. Meet all the parties involved. Obtain a good feeling about them and what they are doing.
3. Obtain documentation on the forecasts and assess the forecast for reasonableness.
4. Find out how much control your party will have in the business. Are they a minority member with
5. Make sure they are going to stay aware of what is happening with the investment. You do not want
them forgetting about it. Obtain monthly or quarterly updates for your own peace of mind.
6. Document the understanding of the parties involved and what steps will happen if things go south.
Remember, money lent should always be documented. Proper research should also be completed. Later grief may be avoided. By this way you may be able to protect your wealth from all including family members. #taxsmartpros