Six things you need to know about getting a college loan from your grandchildren
The cost of college has been rising, and even well-planned families may find that they are spending more than they can afford. Able grandparents may be inclined to help provide loans to grandchildren. But before lending money to your beloved family members, there are some legal and personal issues to consider.
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1. Ask before lending
Many kind grandparents can offend their family by borrowing money without borrowing. Financial gifts to grandchildren may be misunderstood by your grandchildren or their parents or guardians. Although many families will welcome help paying for college expenses, be sure to ask first before making a loan to your grandchildren.
2. Consider the tax consequences
Depending on how you arrange the loan, the IRS may treat it as a gift.According to the current IRS regulations, you and your spouse are free to give gifts of $15,000 to anyone every year without paying Gift tax. If the amount you provide exceeds this amount, the gift will be considered part of the $11.7 million per person limit, and you can give up the gift without paying the gift or inheritance tax.
However, if you arrange the loan correctly, it may not affect your tax liability. Talking with a lawyer here will help. Generally, you need to charge interest and record the loan to avoid treating it as a gift for tax purposes. In addition, you need to report interest income on your tax return to avoid penalties.
3. There is always a contract
Of course, you believe that your grandchildren can repay the money you owe, but if you really want to refund the money, please make sure you ask for the contract. If possible, consider holding collateral so that your grandson has the incentive to repay in time.
This can be challenging because many college students don’t have meaningful assets that can be used for collateral.However, set a promissory note or Payment agreement, And require a certain amount of monthly payment, which is a good way to hold your grandson accountable. A written contract can ensure that there will be no problems with the family in the future.
4. Make monthly payments reasonable
When setting up a promissory note or payment agreement, make sure that the monthly payment you request is not too high for the limited budget of college students. Simply put, “affordable money” usually means you get nothing in the end.
5. Treat this as a life lesson
Loaning money for grandson to go to college is a good way to teach financial management skills, and will not have a wide-ranging credit impact in the event of a default. This is an opportunity to teach your grandson about money and how it works in a safe, protected environment. The young person you love will not only receive a college education, but also a real-world education about borrowing.
6. Know your options
before Lending to grandchildren, Know how to get the money back when they decide not to repay. If you have a contract, the loan may be legally binding. You can take your grandchildren to small claims court, or take back any assets they have deposited as collateral. However, you must be willing to do so. Otherwise, you may lose the money lent to them.
Loans to grandchildren are completely legal and can provide important financial help. However, before doing this, you will need to make sure that you understand the financial and legal implications. You may need to discuss these options with a lawyer or financial professional before making a decision, but don’t be afraid to use your wealth to bless your grandson to college.If you have any questions about your situation, please contact Rocket Lawyer’s Essay® Lawyer Affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm, nor is it a substitute for a lawyer or a law firm. The law is complex and changes frequently.Seek legal advice Ask a lawyer.