Loan to Family Member, Advice

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VoiceofReason

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Good morning all

I would welcome all comments on how to structure a loan to a family member to help them secure a home following a break up.

This person is currently not working and in a fragile state emotionally and needs an additional 20k to secure a house following the sale of the former family home.

My preference would of course be for them to purchase a home outright with the funds available. But they are 20k short of a house they seem happy with. This is approx. 1/6 of the asking price so not a mansion by any means but a cosy suitable house.

I could be in a position to loan them the additional 20k, my interest is helping them remain positive and rebuild their life so I'm not looking for any type of a commercial return on this money.

However I do need to ensure that I can receive it back in the future when circumstances allow, and to incentivise that outcome. I can't have it just forgotton about as it is too much money to me, and there could be potential for this to happen.


My initial thoughts are something along the lines of a proposal whereby;

-If any/all of the money is repaid within 5 years then the initial 20k is sufficient to repay the debt.

- Any money remaining outstanding after 5 years needs to be repaid at Capital plus 3% interest per annum after the 5th anniversary.

- Outstanding balance to be paid in full upon any future sale of the property.


All ideas welcome, I need to see if I can make this work without leaving it too loose or appearing too official. Highlighting pitfalls is also appreciated.


Thank you for reading.
 
So here's my tuppence worth...

Don't lend the money.

Give it as an outright gift either the 20k or as much as you can.

If you can't afford to do that stay out of the business.
 
Why would a person with no income and a fixed amount of capital select a house 20 grand above that?
Are you sure you're not being guilted into paying the balance?
 
Get some agreement on payback but do not really expect to get it back .
If you get it back = a bonus .
If not your ,reward will be in Heaven .

Always assume family loans are not repayable and that you can afford to suffer k20 loss.
If you decide not to give the k20 ,ask is it Better to fallout today than in X years ?
 
Don't give it. If the person is not working, they are unlikely to have the funds to repay it at a later date. This seems like a really low value house, and one which the donee can't even afford him/herself. If they cannot afford it now - then how will they afford it later? From social welfare, no chance.

I would plead inability to pay, or prior commitment if they know you have the funds e.g. a Revenue tax-bill you didn't know you had as your employer (or a previous employer) didn't deduct enough PAYE etc.

If you do give it, and are not even expecting it back - the donee may even resent your kindness ... (not unknown!)
 
I've given money to family in the past , it's mostly impossible to get back. You'll end up with a major headache , you will start to look at what they are spending money on that could of been a payment to you instead stuff like holidays you'll begrudge them. I've done and wouldn't ever do it again, either give it for free or not at all imo. I know you mean well for them and I've been that guy but I cursed my stupidity afterwards, so and so is out every 2nd drinking and hasn't paid me a bean back blah blah blah and even worse when my wife was like told you so ....

It's a quick way to fall out with family.
 
On the basis of what you tell us it seems the person is unlikely to repay. Indeed depending on what their background is it could even disincentivise them from earning a living if that was going to trigger repayment. I have had family members who, having been rescued by parental support when the going got tough, have never returned to work despite being well qualified. And despite having received multiples of what their siblings have received they still have a feeling of never having got enough and things being "unfair". It is very difficult to give help without disempowering the person's own sense of worth and abilities. Much better to help them get a job and income.
 
Thank you sincerely for all replies to date, lots to mull over. I feel the person would be well intentioned to repay but I feel that they never get to a position to and I suppose the outcome is the same.
 
VoiceofReason said:
However I do need to ensure that I can receive it back in the future when circumstances allow
Click to expand...
In that case you probably shouldn't lend it as circumstances may never allow.

If in fact you could live without repayment then maybe your choices are 1. gift the 20k, 2. lend it on the loose no interest basis of repay what you can when you can (repay all on resale), 3. don't lend
 
@VoiceofReason Does this person have any dependants or natural next of kin? What age is the person relative to yourself?

For example, if this is a sibling with no partner or children then it is a very different position to a cousin with kids of their own.

I agree with the posters above. You need to loan this money with the intention of writing it off. If it is repaid at any point you should consider this as a bonus.

If it was me (depending on the relationship), I would suggest paying a minimum of 10 euro a week (assume they are on social welfare or pension), but if they get a job this will need to change. This is more to remind them the loan is still there, as otherwise they are likely to forget about it. You can call this interest only if you wish!

I would also agree a formal charge on the property to the value of 20k, so in the event the person passes away, you can claim the 20k out of the proceeds. So in essence you get paid when they pass away

However, this does depend on the closeness of the relationship and their dependants, if any.
 
gnf_ireland said:
@VoiceofReason Does this person have any dependants or natural next of kin? What age is the person relative to yourself?

For example, if this is a sibling with no partner or children then it is a very different position to a cousin with kids of their own.

I agree with the posters above. You need to loan this money with the intention of writing it off. If it is repaid at any point you should consider this as a bonus.

If it was me (depending on the relationship), I would suggest paying a minimum of 10 euro a week (assume they are on social welfare or pension), but if they get a job this will need to change. This is more to remind them the loan is still there, as otherwise they are likely to forget about it. You can call this interest only if you wish!

I would also agree a formal charge on the property to the value of 20k, so in the event the person passes away, you can claim the 20k out of the proceeds. So in essence you get paid when they pass away

However, this does depend on the closeness of the relationship and their dependants, if any.
Click to expand...


Sibling, 2 years younger than me with 1 grown up son living abroad.
 
VoiceofReason said:
Sibling, 2 years younger than me with 1 grown up son living abroad.
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And I am guessing the son is not in a position to fund the loan ?
I think you need to give it with the view of never getting back the money unless they pass away. I would definitely look to put a charge on the property, or at least get the son to co-sign the loan agreement. He would be the obvious heir, so I would make sure they were aware of the loan from the outset (so they cannot claim anything else later on)

Siblings are always a difficult one !
 
Setanta12 said:
Don't give it. If the person is not working, they are unlikely to have the funds to repay it at a later date. This seems like a really low value house, and one which the donee can't even afford him/herself. If they cannot afford it now - then how will they afford it later? From social welfare, no chance.

I would plead inability to pay, or prior commitment if they know you have the funds e.g. a Revenue tax-bill you didn't know you had as your employer (or a previous employer) didn't deduct enough PAYE etc.

If you do give it, and are not even expecting it back - the donee may even resent your kindness ... (not unknown!)
Click to expand...

....No good deed goes unpunished,
 
VoiceofReason said:
Sibling, 2 years younger than me with 1 grown up son living abroad.
Click to expand...

Normally I'd say never a borrower nor lender be. I have two family loans outstanding at the moment. One is being paid off monthly, at a snails pace but by dd so eventually it will get there. The other is going to be paid out of the proceeds of a property I'm executor on - currently going thru. I loaned because they were desparate. Also agreed it with my husband of course.

If you do this you should put your name on the 1/6th share of the house. That way your money is secure. Then you should agree that your sister buys out your 1/5 share. If she's as broke as I think she is, a 10 Euro a week amount by dd should be sent in motion immediately. Draw up a legal contract. It won't cost a lot. I suggest this option to you as you need the money, just not now. It also means you are both less likely to fall out over it.

If your sister doesn't want your name on the title, that would be unreasonable in my view.
 
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