Is it a loan or a gift?
Most arguments over family money start years later, when one person remembers a loan and the other remembers a gift. Writing it down when the money changes hands helps settle the question for both of you.
When it comes up
Brothers and sisters. When a parent helped one child, the others may ask whether that money should come out of an inheritance.
Divorce. If parents lent money for a couple’s home, a written loan to both of them can help show it wasn’t a gift to one.
Death. If the lender dies, their family needs to know whether money is still owed and to whom.
Taxes. The IRS asks the same question for gift tax and for any claim that a loan went bad.
What makes it clearly a loan
- A signed agreement that says it is a loan, not a gift.
- A fixed amount and a payment schedule.
- Interest, or a plain statement that there is none.
- Payments that are actually made, and a record of them.
- What happens if payments stop.
If you mean it as a gift
Say so instead. A gift needs no agreement, and the yearly gift limits on our gift tax page tell you whether you need to report it.