Many consider a handshake between family members to be an enforceable contract. But for the IRS, they believe that money transfers between family members are gifts, unless there is evidence that comes in the form of a family credit contract. To ensure the legality of your loan, you need to consider the following steps: lending money to a family member or friend can be a mockery task. It goes without saying that money can create problems and solve all your problems in the same way. For this reason, financial involvement often ruins relationships with family and friends. This is why most financial experts advise against borrowing a family member or friend. After all, you have no guarantee that you will get your money back. However, there are strict but useful steps you can take to help your family member or friend get out of a difficult financial situation without ruining your relationship with them. To avoid such adverse effects (on relationships or finances), it is a good idea to first carefully consider whether the loan should be taken out, and then formalize the terms of the loan and repayment agreements in a written agreement. The IRS takes care of everything — even the loans you lend to family members. Check with a local tax advisor before signing contracts or borrowing. For example, the lender might seem to take over the borrower, or siblings who have not obtained similar loans, could become jealous of those who have.
Worse, what if the borrower can`t or won`t pay off the loan? A family credit contract is a loan between family members. You can lend money to another member of your family if they need it. The purpose of the loan does not matter and does not require the services of a credit union, bank or other credit institution. But we keep doing it. According to Scottish Widows research, the number of such loans increased by 31% between 2007 and 2012. Lending money to a family member can become a very scary business and that`s why it`s important to be very clear about creating a family credit contract. Before you consider creating a personal credit contract with friends or family, there are a few things to remember: research each provider and ask what services they can offer and what services they can`t offer before signing an agreement. They can also work with local lawyers and companies that offer similar services.