Husband and wife working out gifts and loans in their estate plan together.

How to Account for Gifts and Loans You’ve Made to Children in Your Estate Plan

Helping our children succeed in the world is one of the greatest joys as a parent. Sadly, when parents have multiple children, conflict can arise when a parent gives or loans money to only one child. Accounting for gifts and loans you’ve made to your children in your estate plan can prevent the potential for conflict after your death. 

One Child May Need More Financial Help During Your Lifetime

Perhaps a parent paid $60,000 for the firstborn child to attend college, and the second-born child never went to college. The second-born child could feel slighted and claim an additional $60,000 of the parent’s estate after the parent’s death. Or, perhaps a mother decides to give her used car to an adult daughter who recently got a job in another state and needs a vehicle. The other adult daughter might perceive that her mother has mistreated her. 

Sometimes a parent will make a private loan to an adult child who wants to put down money on a house or start a business. When the parent passes away before the adult child pays the loan back, the siblings who didn’t receive a loan may feel slighted. They might feel like their parent should reduce the number of assets the sibling with the loan inherits by the amount of the loan that is outstanding. 

Most parents treat their children fairly and seek to help their children as much as possible. When trying to do a good deed by giving a gift or a loan to one child, they might cause their other child or children to feel resentment. 

Communication with Your Children is Key

As a parent, you are entitled to loan money, gift, and bequeath your assets as you see fit. You certainly do not need to make sure that each of your children receives the same amount of net assets after your death if you don’t want to do so. While you are not required to communicate your intentions, it can be beneficial to do so. You might tell your children that you helped out your second child with extra money because he needed it. 

Your Estate Plan Should Clearly State Your Intentions Regarding Loans and Gifts

Your estate planning document should make your intent crystal clear when it comes to gifts and loans made during life. For example, you might state in your will that you are not making any adjustments to your will based on gifts you made during your life. You could explain in your will that one child is receiving a reduced share because he or she received a gift during your life. 

Addressing Loans Made in Life in Your Estate Plan

What happens if you offered one of your children a loan during your life, and did not provide your other children a loan? If you would like to reduce your child’s share of the state based on the loan, you should make that intent known in your estate planning documents. 

You could state that the loan was an advance against that child’s inheritance and that the inheritance should be reduced by the amount of the loan that is outstanding. In other words, if the child inherits $100,000 and still owes $40,000 from the loan at the time of your death, your child would inherit $60,000. Or, you can state that your loan was a gift that will not count against your child’s inheritance. You can also indicate that if the child claims that the loan has been forgiven, he or she must prove the loan forgiveness in writing. 

Our Estate Planning Lawyers Can Help with Gifts and Loans

As a parent, you have a right to help your children financially as you see fit. Parents who give their children money or loans during life can take steps to account for those gifts in their estate plan. Clearly explaining your intentions in your estate planning documents will reduce the risk of conflicts among your children after your death. Contact the Southeastern Massachusetts estate planning law firm of Surprenant & Beneski, PC today to schedule your initial consultation.